CMP (Rs) 133 Upside/ (Downside) (%) 35 Bloomberg Ticker. ICEM IN Market Cap. (Rs bn) 41 Free Float (%) 71.6 Shares O/S (mn) 308.1

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1 4QFY18 Result Update May 28, 2018 Market Cap. (Rs bn) 41 Free Float (%) 71.6 Shares O/S (mn) Subdued Operating Show on Cost Pressure (ICL) has reported a subdued set of numbers for 4QFY18. Its reported EBITDA declined by ~17% YoY and ~5% QoQ to Rs1.6bn (vs. our estimate of Rs1.7bn) owing to higher-thanestimated rise (+5.5% QoQ) in cement operating cost/tonne to Rs3,920 led by higher employee cost, Freight and Power & Fuel cost. Cement EBITDA/tonne came in at Rs499 as against Rs712 and Rs628 in 4QFY17 and 3QFY18, respectively. However, net profit stood at Rs353mn (vs. our estimate of Rs200mn) led by lower tax and interest cost. Whilst receivables declined to Rs6.3bn (vs. Rs7.9bn in 1HFY18), which aided ICL to sequentially reduce its gross debt by Rs2.3bn, on YoY basis its debt rose by Rs2bn to Rs31.3bn again reaching the peak witnessed in FY15. We believe that ICL s inability to pare down debt amid no capacity expansion may not warrant any rerating of the stock, while the likely pick-up in pricing scenario and acceleration in demand in TN are likely to aid ICL s profitability. Though we cut our EBITDA estimate by 11% and 8% for FY19E and FY20E, respectively mainly to factor in cost inflation, the current valuations appear to be attractive following a sharp correction in stock price over last three months. We maintain our recommendation on the stock with a downwardly revised Target Price of Rs180. Share price (%) 1 mth 3 mth 12 mth Absolute performance (7.1) (15.6) (32.4) Relative to Nifty (7.4) (15.8) (43.9) Shareholding Pattern (%) Mar'18 Dec'17 Promoter Public Year Stock Price Performance Moderate YoY Growth in Revenue; Sales Volume up 6.4% YoY Revenue grew by a moderate 4% YoY to Rs14bn mainly led by 6.4% YoY growth in sales volume growth to 3.09mnT. A substantial demand improvement in AP/Telangana along with gradual demand revival in Tamil Nadu aided sales volume growth. Southern demand grew by 15% in 4QFY18, which ICL expects to sustain in 1HFY19 as well. Further, revenue from Shipping, Trishul (RMC) and Wind Mill stood at Rs43mn, Rs245mn and Rs43mn, respectively. Cost Inflation Mars Operating Performance Despite 1.7% QoQ rise in realisation, ICL s EBITDA declined by 17% YoY and 5% QoQ to Rs1.6bn led by higher-than-estimated surge in operational cost. While Freight cost/tonne increased by 4% QoQ to Rs1,074, Power & Fuel cost/tonne rose by 1% QoQ to Rs1,131. Notably, employees cost too surged by 30% QoQ to Rs996mn mainly due to non-recurring items of ~Rs170mn during the quarter. Cement EBITDA/tonne stood at Rs499 vs. Rs712 and Rs628 in 4QFY17 and 3QFY18, respectively. Looking ahead, we believe that likely improvement in realisation may aid ICL s operational performance May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Note: CMp as on May 28, 2018 Mar-18 Mar-18 Apr-18 May-18 Outlook & Valuation Higher debt, absence of pricing recovery, cost pressure along with ambiguity over capacity expansion have been major headwinds for the stock performance for last couple of months. We believe that demand revival in Southern market (including Tamil Nadu) along with likely up-tick in realisation is expected to augur well for the stock, which following a sharp correction over last three months is available at a attractive price point (6.3x FY20 EBITDA). We maintain our recommendation on the stock with a downwardly revised Target Price of Rs180. Key Financials (Rs mn) FY17 FY18E FY19E FY20E Sales 50,792 53,407 59,502 65,019 EBITDA 8,610 6,928 8,809 10,646 APAT EPS (Rs) DPS (Rs) P/E (x) P/B (x) EV/EBITDA (x) RoE (%) Divi. Yield (%) Source: Company, RSec Research Research Analyst: Binod Modi Contact: binod.modi@relianceada.com 1

2 Risks to the View Government s failure to revive activities in infrastructure space. Any significant deterioration in pricing environment and substantial rise in input cost. Conference Call Key Takeaways Demand in Southern Markets: Demand in Southern markets grew by 15% YoY and 6% YoY in 4QFY18 and FY18, respectively. In 4QFY18, while demand in AP+Telangana grew by 37% YoY (2.2mnT/month consumption), the demand in Karnataka increased by 10% YoY (1.7mnT/month). Notably, demand in Tamil Nadu+Kerala grew by 4% YoY in 4QFY18 (2.1mnT/month) vs. 10% YoY decline in 9MFY18. While the demand in Southern + Western markets in expected to grow by 10% in FY19E, the Management expects 15% demand growth to sustain in 1HFY19. Demand Drivers: Infrastructure continued to drive demand in Southern region, which also restricted blended cement demand and put pressure on cost too. With the improved sand availability in Tamil Nadu markets, demand witnessed a visible up-tick. The Management expects the demand momentum in Tamil Nadu to accelerate further once the sand prices come down in ensuing months. Pricing Outlook: While ICL remains hopeful for price recovery, it does not seem to be sure of any meaningful price improvement in the near-term despite higher demand. Clinker Production & Utilisation: Clinker production stood at 8.0mnT (76% utilisation) in FY18, while cement utilisation stood at 79% and 74% in 4QFY18 and FY18, respectively. Capacity Expansion & Capex: Though the Management did not explicitly share its capacity expansion plan, it maintained that ICL has all requisite clearances for Brownfield expansion at its three plants. Stating that ICL has suicient limestone reserve (up to 2bn tonne) to support expansion, the Management stated that clarity over expansion may emerge in next two quarters. Further, ICL is yet to formalise any plan for setting up WHRS at Chilamakur plant. It is likely to incur a regular capex of Rs2.5bn in FY19E. Other Expenditures: The Management attributed higher other expenditure in 4QFY18 to: (a) higher packaging charges (which is likely to increase further by 3-4% in 1QFY19); (b) higher maintenance cost (Rs390mn); and (c) higher other overheads (Rs350mn). Lead Distance: Though the lead distance remained flat during the quarter, the management expects it to come down in coming months with the visible demand revival in Tamil Nadu. Working Capital Cycle & Debt: With Rs1.7bn reduction in receivable to Rs6.3bn in 4QFY18 (vs. 1HFY18), ICL s gross reduced to Rs31.3bn vs. Rs33.6bn in 3QFY18 and Rs29.2bn in FY17. However, ICL expects the debt to shoot up further in 1QFY19 led by incentives and other schemes given in the beginning of year. Debt repayment liability for FY19 stood at Rs1.55bn. f f Tax Incentives under 80 IA: ICL availed tax exemption up to Rs360mn in FY18 for its captive power plants, which it expects to avail for next 9 years. 2

3 Exhibit 1: Quarterly Performance India Cement (Rs mn) 4QFY18 4QFY17 % yoy 3QFY18 % qoq Net Sales 13,978 13, , (Increase) / Decrease in Stock in Trade and WIP (37) (154) 99 Consumption of raw materials, components, etc Stock in Trade (28) 0 60 Total Raw material consumed 2,470 2, , % Net Sales Employee Cost % Net Sales Power & Fuel Cost 3,492 3, , % Net Sales Transportation & Handling Charges 3,315 3, , % Net Sales Other Expenditures 2,119 2, , % Net Sales Total Expenditures 12,393 11, , % Net Sales Cement Cost/tonne (Rs) 3,920 3, , EBITDA 1,585 1,900 (16.5) 1,673 (5.2) EBITDA margin (%) Cement EBITDA 1,541 2,065 (25.4) 1,711 (9.9) EBITDA per tonne (29.9) 628 (20.5) Depreciation EBIT 921 1,260 (26.9) 1,039 (11.4) Interest and Finance Charges (12.4) 924 (22.2) Other Income PBT (47.0) Tax Expenses (110.3) 115 (196.2) - - % Tax PAT Source: Company, RSec Research 3

4 Exhibit 2: Revised vs. Old Estimates FY19E FY20E Old Revised % change Old Revised % change Volume (mnt) Realization (Rs/tonne) 4,788 4,657 (2.7) 4,624 4, Sales (Rs mn) 60,837 59,502 (2.2) 66,486 65,019 (2.2) EBITDA (Rs mn) 9,915 8,809 (11.2) 11,563 10,646 (7.9) EBITDA margins (%) PAT (Rs mn) 3,098 2,292 (26.0) 4,040 3,606 (10.7) PAT margins (%) EPS (Rs) (26.0) (10.7) Source: RSec Research 4

5 Profit & Loss Y/E Mar (Rs mn) FY17 FY18 FY19E FY20E Net sales 50,792 53,407 59,502 65,019 % yoy growth Total Cost 42,181 46,479 50,693 54,373 Ram Material Expenditures 10,617 10,779 12,347 13,561 Employee Costs 3,603 3,971 3,404 3,736 Power and Fuel 10,597 12,389 14,184 14,978 Freight and Forewarding 15,663 18,155 19,457 20,756 Other Expenditures 1,701 1,185 1,300 1,342 EBITDA 8,610 6,928 8,809 10,646 EBITDA Margin (%) Depreciation 2,571 2,559 2,615 2,692 Interest 3,605 3,402 3,543 3,381 Other Income PBT 2,600 1,161 2,865 4,808 Tax ,202 Eective tax rate (%) Net Profit 1,734 1,006 2,292 3,606 YoY Growth (%) 33.4 (41.9) APAT 1,734 1,006 2,292 3,606 PAT %

6 Balance Sheet Y/E Mar (Rs mn) FY17 FY18E FY19E FY20E Share Capital 3,081 3,081 3,081 3,081 Reserves & Surplus 48,017 48,728 50,650 53,516 Total Shareholder's funds 51,099 51,809 53,731 56,598 Secured Loans 23,983 28,180 27,180 25,180 Unsecured Loans 5,230 3,098 3,498 2,698 Total Debt 29,213 31,278 30,678 27,878 Deered Tax liability 6,556 6,532 6,556 6,556 Other NC Liabilities 1,887 1,711 1,866 2,001 TOTAL LIABILITIES 88,756 91,331 92,832 93,034 APPLICATION OF FUNDS Gross Block 75,015 75,809 78,309 80,309 Less: Accumulated Depreciation 5,286 7,846 10,461 13,152 Net Block 69,729 67,963 67,848 67,156 CWIP 1,278 1,712 1,712 1,712 Investments 6,190 5,884 5,884 5,884 Other NC Assets 12,295 14,124 14,998 16,032 Inventories 7,450 6,723 7,336 8,016 Sundry Debtors 5,089 6,295 7,336 8,016 Cash & Bank Loans & Advances 4,354 4,474 4,891 4,988 Current Liablities & Prov. 17,697 15,927 17,361 19,068 Net Current Assets (737) 1,648 2,391 2,250 TOTAL ASSETS 88,756 91,331 92,832 93,034 6

7 Cash Flow Statement Y/E Mar (Rs mn) FY17 FY18E FY19E FY20E PBT before Extraordinary Items 2,600 1,161 2,865 4,808 Depreciation 2,571 2,559 2,615 2,692 Interest Exp. 4,223 3,402 3,543 3,381 Others (714) Operation Profit before WC changes 8,680 7,122 9,023 10,881 Trade and Other Receivables (1,336) (3,155) (2,331) (1,812) Inventories (1,456) 727 (613) (680) Trade Payables 2,905 (1,947) 1,589 1,843 Cash generated from Operation 8,794 2,748 7,667 10,232 Direct Taxes (637) (179) (549) (1,202) Net cash from Operating Activities 8,157 2,569 7,118 9,030 Purchase of Fixed Assets (969) (1,228) (2,500) (2,000) Others (209) Net cash from Investing activities (1,178) (921) (2,500) (2,000) Proceed from Long Term Borrowings - 2,065 (600) (2,800) Interest paid/divi.paid (net of remission) (4,555) (3,697) (3,913) (4,121) Others (2,338) Net Cash from financing activities (6,894) (1,632) (4,513) (6,921) Incr./ (Decr.) in cash & cash equivalent Opening cash Closing Cash

8 Key Ratio Y/E Mar FY17 FY18E FY19E FY20E Valuation Ratio (x) P/E P/CEPS P/BV EV/EBIDTA EV/Sales EV/tonne (USD) Dividend Payout (%) Dividend Yield (%) Per Share Data (Rs) EPS (Basic) EPS (Diluted) CEPS DPS Book Value EBITDA/tone Returns (%) RoCE RoE Turnover ratios (x) Asset Turnover (Gross block) Inventory (days) Receivables (days) Payables (days)

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