ACC LIMITED (ASSOCIATED CEMENT COMPANIES)

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1 ACC LIMITED (ASSOCIATED CEMENT COMPANIES) BUY CMP: Rs Date: 18 Nov,2009 Key Ratios: Particulars CY07 A CY08A CY09E CY10E OPM(%) NPM(%) ROE(%) ROCE(%) P/BV(x) P/E(x) EV/EBDITA(x) Debt Equity(x) Key Data: Sector Cement Sector Face Value wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code V.S.R. Sastry Vice President Equity Research Desk vsrsastry@firstcallindiaequity.com Target Price:Rs Market Cap: Rs mn. SYNOPSIS ACC s brand name is synonymous with cement and enjoys a high level of equity in Indian market. It is the only cement company that figures in the list of Consumer Super Brands of India. ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC's operations are spread throughout the country with 14 modern cement factories, more than 30 Ready mix concrete plants, 20 sales offices, and several zonal offices. ACC is going to spend Rs 1,400 crore next year to augment its capacity. Meanwhile, it believes that more orders may start flowing in from housing and commercial sectors in near future. The revenue of the company for the quarter ended on September 30 th increased 8% YoY while profit increased 60% YoY. The topline of the company are expected to grow at a CAGR of 11% over 2008A to 2010E. Share Holding Pattern: Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer drsastry@firstcallindia.com

2 Table of Content Investment Highlights... 3 Peer Group Comparison... 6 Financials... 7 Charts... 9 Outlook and Conclusion Industry Overview... 11

3 Investment Highlights Results Updates (Q3 CY09) The bottomline of the company for the quarter increased 60% yoy to Rs mn from Rs mn of same period of last year. Total revenue for the quarter stood at Rs mn from Rs which is 8% increased than that of a year ago period.eps for the quarter stood at Rs per equity share of Rs each. Expenditure of the company decreased 5% YoY to Rs mn from Rs mn of same period of last year. Interest expenses for the quarter stood at Rs mn. OPM & NPM for the quarter stood at 33% and 20% respectively. Quarterly Results - Consolidated (Rs in mn) As at Sep - 09 Sep- 08 %Change Net Sales Net Profit Basic EPS

4 Particulars October 09 October 08 Cement Production 1.71 million tonnes 1.74 million tonnes Cement Despatch 1.69 million tonnes 1.70 million tonnes Particulars September 09 September 08 Cement Production 1.64 million tonnes 1.67 million tonnes Cement Despatch 1.63 million tonnes 1.67 million tonnes

5 Particulars August 09 August 08 Cement Production 1.63 million tonnes 1.52 million tonnes Cement Despatch 1.65 million tonnes 1.54 million tonnes Particulars July 09 July 08 Cement Production 1.78 million tonnes 1.73 million tonnes Cement Despatch 1.78 million tonnes 1.71 million tonnes Allots 1570 shares under ESOS ACC has allotted 1,570 shares upon exercise of stock options under its Employee Stock Options Schemes (ESOS 2001 and ESOS 2004). ACC mops up Rs.300 crore through private placement route ACC has mopped up Rs 300 crore through the private placement route. The company has completed the issue of 3,000 secured non-convertible debentures (NCDs) of the face of Rs 10 lakh each. The bond has a coupon rate of 8.45% payable annually and is for a period of five years. ACC to spend Rs.1400 crore on capacity expansion ACC is going to spend Rs 1,400 crore next year to augment its capacity. Meanwhile, it believes that more orders may start flowing in from housing and commercial sectors in near future. ACC allots 1575 shares on exercise of employee stock options Cement major ACC has allotted 1,575 shares against exercise of Employee Stock Options under the ESOS 2004 scheme. ACC board approves 100% interim dividend ACC has announced that the board of the company has approved payment of interim dividend at the rate of Rs 10 per equity share of Rs 10 each.

6 ACC in pact with MP government for coal blocks ACC has signed an agreement with the Madhya Pradesh State Mining Corporation (MPSMC), a Madhya Pradesh (MP) government run entity. As per the terms of the agreement, a wholly-owned subsidiary of the company -- ACC Mineral Resources (AMRL) -- will form a joint venture with MPSMC to explore and mine four coal blocks at Marki Barka, Bicharpur, Semaria Piparia and Niorga IV blocks, with total reserves of around 200 million tonne. The coal find from these blocks will be supplied to ACC s cement plants at Gagal, Kymore, Tikaria and Lakheri locations. The move will help the company to stop sourcing coal from e-auctions and open market and will also lead to improved performance of the company's cement plants as a direct result of better supply assurance, lower inventory carrying costs and, above all, consistent and better quality of the product.these mines are expected to become operational in next 4-5 years. Peer Group Comparison Name of the company CMP (As on18 Nov, 2009) Market Cap. (Rs. Mn.) EPS (Rs.) P/E (x) P/BV (x) Dividend(%) ACC Ltd JK Cement Ultra Tech Cement Ambuja Cements Limited

7 Key Concerns The southern region of the country is currently facing problems of slow demand growth and many new capacities coming on stream. With ACC s major portion of capacity expansion taking place in South India, this could be a cause of concern. Any rise in input costs like coal could put pressure on margins. Increased government infrastructure spending has been a key focus area over the last five years indicating good times ahead for cement manufacturers. Financials 12 Months Ended Profit & Loss Account (Consolidated) Particulars CY 07 A CY 08 A CY 09 E CY10 E (Rs.Mn) 12m 12m 12m 12m Net Sales 70, , , Other Income 1, , Total Income 71, , , Expenditure , Operating Profit 20, , , Interest Exceptional Items 2, Gross Profit 22, , , Depreciation -3, , Profit before Tax 19, , , Tax -4, , Profit after Tax 14, , , Minority Interest

8 Net Profit 14, , , Equity Capital 1, , , Reserves 39, , , , EPS *A=Actual, E=Estimated Quarterly Ended Profit & Loss Account (Consolidated) Particulars Mar 09 A June 09 A Sep 09 A Dec 09 E (Rs.Mn) 3m 3m 3m 3m Net Sales 21, , , Other Income Total Income 22, , , Expenditure Operating Profit 6, , , Interest Gross Profit 6, , , Depreciation Profit before Tax 5, , , Tax -1, , , Profit after Tax 3, , , Minority Interest Net Profit 3, , , Equity Capital 1, , , EPS

9 Charts

10 Comparative Graph ACC LTD BSE SENSEX Outlook and Conclusion At the current market price of Rs , the stock trades at a P/E of 8.01x and 7.63x for CY09E and CY10E respectively. On the basis of EV/EBDITA, the stock trades at 4.70x and 4.90x for CY09E and CY10E respectively. Price to Book Value of the stock is expected to be at 2.10 and 1.65 respectively for FY10E and FY11E. The Net sales of the company are expected to grow at a CAGR of 11% over 2008 to 2010E.

11 ACC Mineral Resources (AMRL), a wholly owned subsidiary of the company has inked a pact with Madhya Pradesh State Mining Corporation (MPSMC). ACC is going to spend Rs 1,400 crore next year to augment its capacity. Meanwhile, it believes that more orders may start flowing in from housing and commercial sectors in near future. The Ministry of Coal allocated a coal block in the state of West Bengal to a consortium in which the Company is a member. The Company plans to carry out mining activities through a joint venture company to be formed. The company could expand its margins due to improved operating efficiencies. ACC benefited from lower coal prices and fuel costs. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long Term Gains. Industry Overview India is the world's second largest producer of cement after China, with cement companies adding nearly eight million tonnes (MT) capacity in April 2009, taking the total installed capacity to 219 MT. A few of the leading manufacturers are the UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc. With the boost given by the government to various infrastructure projects, road networks and housing facilities, growth in the cement consumption is anticipated in the coming years. According to Jyotiraditya Scindia, Minister of State, Ministry of Commerce and Industry, cement production could rise to MT in FY11 and touch MT in FY12. With almost total capacity utilisation levels in the industry, cement despatches have maintained a 10 per cent growth rate. Total despatches grew to 170 MT during as against 155 MT in Moreover, cement despatches were MT in July 2009, showing a growth of 9.92 per cent as compared to MT in July During July 2009, cement production was MT, registering a growth of per cent as compared to MT in July Between April to July 2009, cement production totaled MT while cement despatches totaled MT. Technological change Continuous technological upgrading and assimilation of latest technology has been going on in the cement industry. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-friendly dry process technology and only 7 per cent of the capacity is

12 based on old wet and semi-dry process technology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in emission level. New Investments JSW Cement, part of the OP Jindal Group, plans to set up cement units near the group s steel plants at Kurnool, Andhra Pradesh, and Vijayanagar, Karnataka. The units which will have a combined capacity of 5.5 MT per annum will be set up at a cost of US$ million. Anil Ambani Group company Reliance Infrastructure will invest US$ 2.1 billion to set up cement plants with a total capacity of 20 MT per annum over the next five years. Reliance Cementation, an Anil Dhirubhai Ambani Group (ADAG) company, plans to set up a 5 MT integrated cement plant in Yavatmal district of Maharashtra at a cost of US$ million. Jaiprakash Associates Ltd has inked a MoU with state-owned Assam Mineral Development Corporation Limited (AMDC) for setting up a 2 MT per annum capacity cement plant at an estimated cost of US$ million. Iron ore mining firm Rungta Mines (RML), the flagship company of SR Rungta group, plans to set up a one million tonne cement plant in Orissa with an investment of around US$ 123 million. Mergers and Acquistions (M&As) Holcim strengthened its position in India by increasing its holding in Ambuja Cement from 22 per cent to 56 per cent through various open market transactions with an open offer for a total investment of US$ 1.8 billion. Moreover, it also increased its stake in ACC Cement with US$ 486 million, being the single largest acquirer in the cement sector. Leading foreign funds like Fidelity, ABN Amro, HSBC, Nomura Asset Management Fund and Emerging Market Fund have together bought around 7.5 per cent in India's thirdlargest cement firm, India Cements (ICL), for US$ million. Cimpor, the Portugese cement maker, paid US$ million for Grasim Industries' per cent stake in Shree Digvijay Cement. CRH Plc, the world's second biggest maker and distributor of building materials, acquired a 50 per cent stake in My Home Industries Ltd for almost US$ million. Vicat SA, a French cement maker acquired a 6.67 per cent stake in Hyderabad-based Sagar Cement for US$ million. Government Initiatives Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban development, continue being the main drivers of growth for the Indian cement industry.

13 Increased infrastructure spending has been a key focus area over the last five years indicating good times ahead for cement manufacturers. The government has increased budgetary allocation for roads under National Highways Development Project (NHDP). Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them. Keeping in mind the global meltdown which is impacting the cement companies in India, the government re-imposed the counter-veiling duty (CVD) and special CVD on imported cement in January. This is likely to provide a level playing field to domestic companies. Road Ahead According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase to 241 MTPA by FY 2010-end. India's cement industry is likely to record an annual growth of 10 per cent in the coming years with higher domestic demand resulting in increased capacity utilisation. Moreover, according to the Centre for Monitoring Indian Economy (CMIE), cement production is expected to grow by 8.1 per cent and demand for the same is likely to rise by a healthy per cent in FY Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates 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. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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Sagar Cements Limited

Sagar Cements Limited BUY CMP: Rs.201.25. Date: 12 Jan,2010. Key Ratios: Particulars FY08 A FY09 A FY10E FY11E OPM(%) 26 20 24 24 NPM(%) 14 5 9 8 ROE(%) 30 9 20 19 ROCE(%) 17 9 20 19 P/BV(x) 2.05 0.98