Birla Corporation. Play on favourable Central region at attractive valuations. Target CMP. Rating. Rs Rs. 765 BUY

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1 CMP Target Rating Play on favourable Central region at attractive valuations Rs. 64 Rs. 765 BUY Birla Corporation has an installed capacity of 15.4mt, with presence in Central (56%), North (26%), East (15%), and West (3%). We are positive on BCORP s long term prospects, given (1) favorable regional exposure; (2) increased scale of operations post Reliance Cement acquisition; (3) financial de-leverage; and (4) attractive valuations. Investment thesis: Increased scale of operations; Dominant player in the favorable Central markets: BCORP s scale of operations has increased to 15.4mt from 9.8mt, post the acquisition of 5.58mt capacity of Reliance Cement (will be consolidated in 2QFY17). The company is now the eight largest cement company in India with exposure in North, Central, and East regions. BCORP will be a dominant player in the Central market, with 17% share of the installed Central region capacity, behind UltraTech Cement 22% share post acquisition of Jaypee assets. Central region is one of the most favored region given strong demand-supply dynamics. Utilisations of 85%, low new supply visibility, consolidated market (top 5 having 7 market share of the region) Reliance Cement acquisition, a step in the right direction: BCORP acquired Reliance Cement for an enterprise value of Rs. 48bn, with a current capacity of 5.58mt implying an EV/t of $13/t. Further, Reliance Cement has land and leases to expand in Rajasthan, Gujarat, Chhattisgarh, Karnataka, and Himachal Pradesh. The deal enhances BCORP s position as it (1) strengthens footprint in one of the most favored cement market (Central region); (2) aids optimization of logistics in the Central markets; (3) Adds modern/ efficient plants to its portfolio; (4) Reliance Cement is eligible for VAT incentives over the next 1-12 years; (5) De-risks the earnings from low profitable Chanderia operations (hampered due to limestone mining ban). North capacity exposure will reduce to 26% from the current 41%. Balance sheet quality to ease led by strong cash flow generation: BCORP s FY16 net cash was ~Rs. 5bn. With the acquisition of Reliance Cement, we expect BOCPR s net debt to peak out Rs. 42bn in FY17E. With strong operating cash flow generation to the tune of Rs. 24bn over FY17-FY19E and limited capex outlay, expect net debt to equity to trend down from Rs. 1.5x to 1x by FY19E. Hence, the current balance sheet quality is not a cause of concern. Valuation and view: We expect FY17-19E volume and realisation growth CAGR of 15% and 5% respectively due to consolidation of Reliance Cement and demand revival in its key markets. EBITDA to grow by 34% CAGR over FY17- FY19E.The stock trades at $95/t and 9x FY18E EBITDA vs. mid cap average of 1x FY18E EV/EBITDA. We believe this discount is unwarranted given the increasing scale of operations, favorable regional exposure, and balance sheet deleveraging. We value BCORP at 1x FY18E EV/EBITDA. We have a Buy Rating with a TP of Rs. 765/share Update date Sept, 216 Market Data SENSEX 28,599 Nifty 8779 Bloomberg BCORP IN Shares o/s 77mn Market Cap Rs. 49bn 52-wk High-Low Rs m Avg. Daily Vol 3,996 Index member BSE 5 Latest shareholding (%) Promoters 62.9 Institutions 19.9 Public 17.2 Stock performance (%) 1m 3m 12m BCORP 2% 45% 31% Sensex 2% 8% 12% Financial summary (Consolidated) Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) EV/EBITDA(x) EV/t (Rs/t) FY16 32,252 2,355 1, ,646 FY17E 44,825 6,445 2, ,788 FY18E 58,645 9,764 3, ,361 GIRISH CHOUDHARY girish@sparkcapital.in GAURAV NAGORI gaurav@sparkcapital.in Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1

2 Company overview 15.4mt capacity with presence in four regions Birla Corporation s Capacity profile Increased scale of operations post acquisition of Reliance Cement s 5.58mt capacity Existing Capacity Post acquisition Chanderia Chanderia Kundanganj 2. Mt Raibareli 1.3 Mt Raibareli 1.3 Mt 4. Mt 3.4 Mt Rajasthan U.P Durgapur 2.3 Mt 4. Mt 3.4 Mt Rajasthan U.P Durgapur 2.3 Mt M.P W.B M.P W.B Maharashtra Satna Butibori.5 Mt Reliance Maihar Satna 3.8 Mt 3.3 Mt 2.2 Mt 3.4 Mt 2.2 Mt 3.4 Mt Total Cement 15.4 Mt Clinkers 1. Mt Future expansion opportunities. Reliance Cement has land and leases to expand in Rajasthan, Gujarat, Maharashtra. Chhattisgarh, Karnataka, and Himachal Pradesh Source: Spark Capital Research Page 2

3 Company Overview 56% of capacity in Central region BCORP s plant-wise cement and clinker capacity Plant Location Cement (mt) Clinker (mt) Chanderia Rajasthan Satna MP Raibareli UP 1.3 Durgapur WB 2.3 Reliance Maihar MP Region wise capacity mix Presence in four regions East, 23% Pre deal North, 41% East 15% Post deal West 3% North 26% Kundanganj UP 2. Butibori Maharashtra.5 Total Central, 36% Central 56% Source: Spark Capital Research. Note: Capacity mix for Birla corp standalone. Source: Spark Capital Research Region wise capacity share Sizeable capacity share in Central region Top cement manufacturers in India BCORP among top 8 18% 16% 14% 12% 1 8% 6% 4% 2% 17% 5% 4% 1% North Central East West Capacity share % Company FY16 Geographical spread UltraTech 65. North, East, West, South, Central Holcim (ACC + Ambuja) 67.6 North, East, West, South, Central Shree Cement 27. North and East Dalmia Bharat 25. East, West, South, North East Ramco Cement 16.5 South and East India Cement 15.7 South and North Birla Corp 15.4 North, Central, and East Note: Capacity share for Birla corp standalone. Source: Spark Capital Research Source: Spark Capital Research Page 3

4 Analysis of Regions where BCORP is Present Central Markets North Markets East Markets Play on both demand and price Play on both demand and price Play on demand Page 4

5 FY7 FY8 FY9 FY1 FY11 FY12 FY13 FY14E FY15 FY16 FY17E FY18E FY19E FY2E Birla Corporation Central region Consolidated market with nil capacity additions will aid better pricing power Around 7 of Central India s capacity is held by five players UTCEM+JP, 22% Central region demand growth 17.6% Others 29% 8.1% BCORP+Rel Cem, 17% 4.4% 1.1% 1.4% Heidelberg, 9% Prism cement, 11% Holcim, 11% Demand growth Source: Spark Capital Demand break up of states in Central ~5mt consumed in FY16 Madhya Pradesh 3 Source: Spark Capital Increasing utilisations support prices in region % 93% 86% 82% 79% 82% 85% 89% 96% 99% 4 Uttar Pradesh 7 2 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY2E Central region utilisations Source: Spark Capital Source: Spark Capital Page 5

6 North region Expect gradual recovery in price from the lows led by bottoming of utilisations North India - Demand, supply, Utilisations, and pricing trends in million tons FY5 FY6 FY7 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY2E Total capacity Effective capacity Production Consumption Demand growth 6% 12% 1 12% 4% 9% 8% 1 6% 5% 5% 3% 5% 7% 9% 1 Utilisations% 94% 16% 15% 15% 94% 94% 82% 87% 88% 87% 84% 81% 81% 86% 89% 93% Pricing growth 11% 13% 27% 1 2% 5% 3% 6% -4% 3% -6% 6% 6% 8% 1 Incremental supply Incremental demand Surplus/(Deficit) (3) () (2) (3) (1) (2) Rolling three year realisations CAGR below Costs since FY9 in North region 35% % 2 24% 2 15% 16% 15% 11% 1 1 7% 8% 7% 8% 4% 4% 5% 6% 5% 3% 2% 4% 1% 1% 5% -5% -1% -2% -1% FY6 FY7 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Rolling 3yr CAGR % - Realisation Rolling 3yr CAGR % - Costs North India based cement manufacturers have been under pressure over the last few years due to weak demand and new supplies (especially from newer entrants in the region like Wonder Cement and Lafarge). The industry has lacked pricing power as a result, margins more than halved from FY1 peak levels. Interestingly, despite higher utilisations in North region versus South region, the cement prices in North are currently 3 lower than prices in the South. Cement prices in North have touched its five year low in Jan15 and recovered since then (3 from lows). We continue to expect gradual revival in prices from a low base led by (1) Incremental supply vs. incremental demand gap in North region turning favorable from FY17E onwards; (2) New capacities in the region are coming from existing players, unlike in past which came from new entrants; (3) Current profitability not sustainable on a longer basis. We have modeled 6% price growth in the region over FY17E and FY18E and 8%-1 in FY19-2E. Page 6

7 Total cost per ton JK Cement Mangalam JK Lakshmi Shree Dalmia India Cements Madras Orient UltraTech ACC Ambuja Net debt to Equity (x) JK Cement Mangalam JK Lakshmi Shree Dalmia India Cements Madras Orient UltraTech ACC Ambuja FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Cement Price (Rs/bag) Birla Corporation North Region prices at significant discount to South region despite better utilisations Average cement prices in North recovered after plunging to 5 years low in Jan16 Prices in North are at a substantial discount to South Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 North South 2 15% 1 5% -5% -1-15% -2-25% -3-35% -2% -13% -3% 5% 4% 16% 12% -6% 9% 7% -9% -1-14% -19% North Cement Prices (Rs/bag) discount/premium to South Cement prices -29% Pricing discipline has not worked in North, given efficient operations and healthy balance sheets versus South peers 4,5 4, 3,5 3, 2,5 2, 1,5 4,78 3,273 3,211 2,72 3,88 3,892 3,432 2,94 3,955 3,956 3, North South Pan India North South Pan India Page 7

8 Mn Units Birla Corporation Eastern region Demand potential remains high East Capacity and utilizations Expect 11mt additions by FY18E Eastern region demand growth trends % 82% 81% 79% 8 79% 76% 81% 81% 75% 74% FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY2E Total capacity (mt) East Capacity Utilization % % 16% 14% 12% 1 8% 6% 4% 2% 18% 13% 11% 6% 6% 6% 7% 8% 9% 1 5% 3% FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY2E East region demand growth % Pricing in the East have been under pressure over the last two years Housing shortage high in East and Central states 2 19% 18% % 1 8% % 5% 4% 2% % -4% -2% FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 OCL realisation growth % 2 North East West South Central India Page 8

9 3,3 3,73 3,539 3,214 3,424 3,827 3,722 3,852 3,618 Birla Corporation Profile on BCORP s existing operations Steady track record of capacity expansion and volume growth Capacity increase from 6mt in FY8 to 1mt by FY16 Volume CAGR of 5% over FY8-FY FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Capacity (mt) % 16% 14% 9% 12% 6% 5% 1% 1% 1 8% 6% 6% 3% 4% % FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Volumes (mt) % growth Operating at healthy utilization rates Realisations were under pressure in North/Central markets in FY % 9 85% 8 75% 7 65% 91% 91% 98% 89% 73% 71% 78% 81% 85% 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 1 2% 15% -9% 7% 12% -3% 4% -6% 2 15% 1 5% -5% -1 6 FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Utilisations % FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Realisations (Rs/t) % growth -15% Page 9

10 ,53 Birla Corporation Profile on BCORP s existing operations Costs hurt due to mining ban at its North plant and clinker shortage Costs/ profile FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 FY12-FY16 CAGR RM costs/t ,25 6% % y-o-y change 9% 36% 19% 21% 16% -6% 12% -5% 15% Power & fuel costs/t ,42 1, % % y-o-y change 6% 11% -2% 15% 16% 7% 9% 9% -15% Freight costs/t % % y-o-y change 6% 2 5% 6% 8% 26% 9% 3% 2% Total costs/t 1,91 2,276 2,294 2,51 2,895 3,28 3,435 3,531 3,325 6% % y-o-y change 7% 19% 1% 9% 15% 13% 5% 3% -6% Clinker Purchase has hurt margins in the past 1,6 1,4 1,2 1, FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Clinker purchase (Rs. mn) Company s operations were hit adversely at its Chanderia unit post the limestone ban ordered by Jodhpur High Court in August 211. BCORP had to resort to external limestone and clinker, which resulted in ~Rs.1.4bn increase in costs or ~Rs. 215/t in FY13. Currently the matter is with Supreme Court, which has appointed Central Building Research Institute to do a study on impact of full scale mining operations. Page 1

11 (1,863) (3,29) (593) (671) 598 3,941 2,465 2,441 1,959 4,48 3, ,493 3,622 2,784 2,446 1,925 1,557 Birla Corporation Profile on BCORP s existing operations Strong balance sheet OCF and FCF Decent track record of FCF generation Leverage Net cash balance sheet till Reliance Cement acquisition 5, 4, 3, 2, 1, -1, -2, -3, -4, FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY (.14) (.14) (.16) -7 (.17) (.19) (.27) (.37) (.44) (.42) FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16-5% -1-15% -2-25% -3-35% -4-45% -5 Operating cash flows (Rs. mn) Free cash flows (Rs mn) Net debt (Rs bn) Net debt to equity % RoE and RoCE profile 5 45% 4 37% 35% 3 25% 2 15% 1 5% 47% 28% 28% 24% 36% 13% 9% 9% 17% 11% 11% RoE % RoCE% 6% 6% 6% 5% 7% 6% FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Dividend payout % 7 8% 14% 19% 6 26% 29% 5 11% 4 8% FY8 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16 Dividend per share Dividend payout ratio% 4 35% 3 25% 2 15% 1 5% Page 11

12 Acquisition of Reliance Cement Good strategic fit for BCORP; Increased exposure to Central region BCORP + Reliance = Total Capacity (Region wise) Combined capacity mix North Central East West Total East 15% West 3% Central 56% North 26% Birla Corp Reliance Cement Reliance Cement Asset profile Utilisations, Volumes, Costs/t, EBITDA/t, Absolute EBITDA (Rs. Mn) FY14 FY15 FY16 Capacity Volumes in mt % growth 65 1 Utilisations % 4% 3 59% Realisations/t 3,261 2,94 4,434 % growth -11% 53% EBITDA/t (137) % growth NM 84% EBITDA in mn (3) 137 2,473 EBITDA margins % () 3% 17% Birla Corporation s deal with Reliance Cement brings the following synergies: Strengthens BCORP s footprint in one of the most favored cement market (Central region) Optimization of logistics in the Central and East markets will aid savings to the tune of Rs. 2/t Addition of modern and efficient plants to its portfolio of cement assets Reliance Cement is eligible for incentives worth Rs. 1bn over the next 12 years Future expansion opportunities. Reliance Cement has land and leases to expand in Rajasthan, Gujarat, Chhattisgarh, Karnataka, and Himachal Pradesh De-risks the earnings from low profitable Chanderia operations (hampered due to limestone mining ban). North capacity exposure will reduce to 26% from the current 41%. Page 12

13 Consolidated key metrics Increased scale of operations + Pick up in prices in North = 4x jump in FY18 EBITDA over FY16 Key metrics of BCORP s existing assets Birla corp FY16 FY17E FY18E FY19E FY2E Capacity Volumes in mt % growth 6% 8% 5% 5% 5% Utilisations % 85% 87% 91% 95% 1 Realisations/t 3,618 3,836 4,27 4,229 4,44 % growth -6% 6% 5% 5% 5% EBITDA/t % growth -9% 96% 18% 13% 12% EBITDA in mn 2,355 4,991 6,174 7,33 8,574 Key metrics of Reliance Cement assets Reliance cements FY16 FY17E FY18E FY19E FY2E Capacity Volumes in mt % growth 1 1 8% 8% 8% Utilisations % 59% 65% 7 76% 82% Realisations/t 4,434 4,523 4,749 4,986 5,236 % growth 53% 2% 5% 5% 5% EBITDA/t ,38 1,169 % growth 84% 7% 14% 13% 13% EBITDA in mn 2,473 2,98 3,589 4,395 5,345 Consolidated key metrics (BCORP existing + Reliance Cement) Consolidated FY17E FY18E FY19E FY2E Capacity Volumes in mt % growth 31% 24% 6% 6% Utilisations % 67% 83% 88% 94% Realisations/t 4,272 4,5 4,72 4,917 % growth 18% 5% 5% 5% EBITDA/t % growth 11 22% 13% 12% EBITDA in mn 6,445 9,764 11,698 13,919 Page 13

14 2,446 1,557 9,417 4,593 2,948 1,245 2,995 11,856 3,845 Birla Corporation While balance sheet leverage will increase significantly in FY17, expect de-leveraging process to be quicker as well FY16 -FY2E Interest coverage ratio Near term leverage not a worry; Net debt to equity to trend down x 3.8x 2.7x 2.9x 2.2x FY16 FY17E FY18E FY19E FY2E (.19) FY16 FY17E FY18E FY19E FY2E EBIT interest coverage ratio % Net debt (Rs bn) Net debt to equity % led by operating and free cash flow generation 15, 1, 5, -5, -1, FY16 FY17E FY18E FY19E FY2E Operating cash flows (Rs. mn) Free cash flows (Rs mn) FY16 FY2E RoE and RoCE profile 18% 16% 14% 11% 12% 1 1 8% 8% 8% 17% 6% 14% 6% 9% 11% 4% 6% 2% FY16 FY17E FY18E FY19E FY2E RoE % RoCE% Page 14

15 Valuation Summary for mid-cap cement companies Company Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) FY17-FY19E CAGR FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E Revenue EBITDA PAT BCORP 32,252 44,825 58,645 64,92 2,355 6,445 9,764 11,698 1,574 2,669 3,217 4, % 34.7% 32. DBL 64,38 79,527 91,768 1,846 15,786 2,78 23,13 25,75 1,98 3,847 6,78 7, % 13.2% 42.4% ICEM 42,268 46,516 52,46 59,191 7,697 9,299 1,261 11,842 1,378 2,841 3,768 4, % 12.8% 31.8% TRCL 35,958 4,121 45,378 49,935 1,59 12,51 13,347 14,75 5,583 6,549 7,914 7, % 8.1% 6.4% ORCMNT 15,92 19,45 23,534 27,182 1,834 2,847 4,812 6, ,864 2, % 45.7% 147.5% JKLC 26,199 3,63 36,65 43,37 2,71 4,916 7,557 9, ,229 3,99 4, % % Company EBITDA margins % EBITDA/t (Rs/t) RoCE RoAE Net Debt to Equity (x) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E BCORP 7.3% 14.4% 16.6% % 7.5% 8.1% 9.5% 5.9% 9.5% 1.6% 13.7% DBL 24.5% 25.2% 25.2% 25.5% 1,186 1,224 1,284 1, % 6.9% 8.3% 9.3% 5.5% 9.5% 13.5% ICEM 18.2% % % 7.9% 8.9% 1.1% 3.8% 7.6% 9.4% 11.2% TRCL 29.5% % 28.2% 1,428 1,415 1,426 1, % 14.1% % 19.4% 19.7% 15.9% ORCMNT 12.1% 14.6% 2.4% 22.2% % 6.5% % 6.2% 4.4% 16.9% 21.4% JKLC 1.3% 16.1% 2.6% 21.8% % 8.1% 13.2% 16.3%.5% 8.9% 19.8% 24.1% Company CMP Shares MCAP EV/EBITDA (x) EV/t (Rs/t) PE (x) Rs. mn Rs. mn FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E BCORP , x 14.1x 9.1x 7.4x 4,646 6,788 6,361 6, x 18.5x 15.3x 1.7x DBL 1, , x 11.4x 9.6x 7.7x 1,23 9,4 9,11 9,31 8.7x 4.x 25.3x 18.x ICEM ,88 9.7x 7.7x 6.7x 5.5x 5,285 5,36 4,838 4, x 16.2x 12.2x 9.3x TRCL , x 12.6x 1.9x 1.1x 11,689 11,262 1,78 8, x 21.6x 17.9x 19.1x ORCMNT , x 19.4x 11.4x 8.9x 6,516 6,899 6,878 6, x 93.4x 22.5x 15.3x JKLC , x 14.2x 9.x 6.9x 7,816 7,14 6,2 6, x 45.x 17.9x 11.9x Page 15

16 Complete chronology of events pertaining to Chanderia mining ban Date August 211 October 211 December 211 April 212 May 212 January 213 March 213 August 213 Events Jodhpur High Court based on the PIL filed directed Birla Corp that no mining should take place in the mining leases within 1km radius from the Chittorgarh Fort Mining operations got suspended from September 211. First round of hearing happened on October 13, 211 and the case got adjourned to December 211 Court gave partial relief by allowing the company to remove 7MT of already excavated limestone. Directed Indian Bureau of mines to conduct inspection Based on the High Court order, permission was given to lift 1.85 lakh tonnes of limestone, blasted during a study conducted by the Indian Bureau of Mines, as per the directions of the Court. However, in compliance with the Court s order, mining operations continue to be suspended Based on the judgment and order dated May 25, 212 passed by the High Court at Jodhpur, the Court has inter alia directed that no mining activities and blasting shall take place within 1 kms from Chittorgarh fort wall. It has further directed that the mining leases granted within 1 kms from fort wall are cancelled. In terms of the aforesaid judgment and order, no mining and blasting operation could be carried out within 1 kms from the fort wall. It may be noted that the mining and blasting operation at Chanderia unit remain suspended since August, 211 in terms of the directions of the High Court. Birla Corp decided to appeal the same with Supreme Court An interim order to allow mining operations without blasting was allowed by the Supreme Court and they nominated Central Building Research Institute to conduct a study and evaluate the impact of mining without blasting operations i.e. mining with any kind of manual or electric gadgets, on Chittorgarh fort. In the meanwhile, the petitioners have been permitted to carry out mining operations manually, without use of any kind of heavy equipment Further to the submission of CBRI report, Supreme Court vide its Order dated 8 th March 213, was pleased to permit mining activities with mechanical means without blasting for a period of 4 (four) weeks, i.e. from 18 th March 213 to 14th April 2L3, beyond 1 Km. of Chittorgarh Fort Wall. Such mining activity would be carried out to enable Central Building Research Institute, Roorkie, to study the cumulative impact of the entire mining activities on Chittorgarh fort and to submit a report to the Supreme Court. Further hearing in the matter will take place after the above report is submitted After considering the report submitted by CBRI as well as the reply filed by Archaeological Survey of India (ASI), the Supreme Court passed an interim order dated July 29, 213 allowing mining operations beyond 2 kms from the Chittorgarh fort by using Heavy Earth Moving Machinery (HEMM). The working mining area of the Company is located at a distance of 4.5 km from fort. Accordingly, pursuant to the said Order, mechanical mining of limestone has been commenced by the Chanderia Unit. Further, as recommended by CBRI, proposal would be submitted to Supreme Court for long term study of the impact of full scale mining operations on the fort to be taken up independently Page 16

17 Chronology of the Birla family vs. Lodha case October 211 M.P. Birla and his wife Priyamvada Birla executed a mutual will wherein the entire property would go to a charitable trust G.P. Birla (first cousin of M.P. Birla), Kashinath Tapuria (brother of Priyamvada Birla) and Pradip Khaitan were executors of this said will (which was not registered) Priyamvada Birla executed another will which was registered, transferring all the properties in the name of R.S. Lodha after her death The Kolkata High Court has quashed a petition filed by RS Lodha and his associates seeking dismissal of the criminal case filed by the Birla family against them In Feb, CLB dismissed petitions filed by Birla family to remove Harsh V. Lodha as the Chairman and director with immediate effect 199 MP Birla dies. Priyamvada takes control of the company with R.S. Lodha assisting her 24 July Priyamvada dies. R.S. Lodha claims the ownership as per the 1999 will Birlas file caveats in the probate section of the District Judges Court in Kolkata and Calcutta High Court 28 R.S Lodha died and his son, Mr. Harsh V. Lodha took charge as the Chairman of the Company Note: We noticed Amarchand Mangaldas is representing Birla Trust and FML (Fox Mandal Little) is representing Lodhas Key points as to how Birla Corp fared under Lodha management since FY8 Total Cement Capacity has increased from 5.8MT to 9.3MT Company remains debt-free with net cash of Rs.5.5bn (19% of market cap) Captive power plants and small Waste Heat Recovery plants have been added Pet coke usage has gone up to 5 now from Nil Page 17

18 Financial Summary Page 18

19 CMP Target Rating Spark Disclaimer Rs. 64 Rs. 765 BUY Rs Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Report Date Price Target Reco. 24/Nov/ Buy 28/Aug/ Buy 17/Jun/ Buy 16/Mar/ Buy 8/Aug/ Buy 11/Jun/ Buy 21/Mar/ Buy 12/Dec/ Buy 1/Nov/ Buy Price Target Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. Absolute Rating Interpretation BUY Stock expected to provide positive returns of >15% over a 1-year horizon ADD Stock expected to provide positive returns of >5% <15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% -1 over a 1-year horizon SELL Stock expected to fall >1 over a 1-year horizon Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Page 19

20 CMP Target Rating Disclaimer (Cont d) Rs. 64 Rs. 765 BUY This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of Interest Statement Analyst financial interest in the company Group/directors ownership of the subject company covered Investment banking relationship with the company covered Spark Capital s ownership/any other financial interest in the company covered Associates of Spark Capital s ownership more than 1% in the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services Products or services other than those above In connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; BCORP No No No No No No No No No Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst s personal views about any and all of the subject securities or issuers; and no part of the research analyst s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations. Page 2