Cement. Price hike offsets cost escalation; recovery expected in 2HFY August 2017 India Cement Sector Report

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1 22 August 2017 India Cement Sector Report Cement Price hike offsets cost escalation; recovery expected in 2HFY18 The cement sector reported in-line results in 1QFY18, as volumes grew 5.6% YoY, primarily on capacity expansion. Growth in weighted average realisations was marginally higher than our estimates at 8% YoY and 7.6% QoQ. EBITDA/t remained flat as realisations growth offset escalations in power/fuel costs (26% YoY) and freight costs (12% YoY). We expect 2QFY18 to be seasonally mute. However, companies expect demand to pick up in 2HFY18 on a rise in infrastructure and housing demand. Profitability in terms of EBITDA/t is likely to be under pressure in 2QFY18 on cost escalations (higher petcoke/coal and diesel prices) and lower operating leverage (reduced utilisations). Dalmia Bharat and JK Lakshmi are our top picks in the sector. Volume growth on capacity expansion: Cumulative volumes for cement companies grew 5.6%/-3.8% YoY/QoQ to 50.56MT, primarily on the capacity expansion (Exhibit 1, 2). Cumulative capacity utilisation during the quarter remained constant YoY at 74%. Data released by the government indicated a 2.6% YoY decline in cement production during 1QFY18. The market share for the top 14 listed players increased from 60% in 2QFY17 to 69% in 1QFY18. Historically, 2Q has been the weakest quarter (22% of full year volumes in FY17) for the cement sector owing to a slowdown in construction activity during the monsoon. Realisation growth on price hikes; marginal price decline in July: Weighted average realisations grew 8.1% YoY in 1QFY18, marginally higher than JMFe. Sequentially, realisations grew 7.6% in line with our expectation of 7.9% growth (Exhibit 5, 6). Growth was partially due to the increased proportion of value-added products. However, cement prices declined marginally by 1.2% MoM in July (1% higher YoY); the western region saw a steep 5% decline MoM as companies factored in GST benefits and reacted to lower demand in the monsoon. As per JK Lakshmi management, Chattisgarh government has advised companies to keep cement prices at INR230/bag during 2QFY18. Companies have supplied at the said rate for about 6 weeks, after which management has initiated a dialogue with the state and is confident of a resolution soon. Realisation growth offsets cost escalations; possible margin impact in 2QFY18: EBITDA/t, at INR 929, was flat YoY in 1QFY18, as realisation growth offset cost escalations (Exhibit 14). Weighted average power/fuel and freight costs grew 26% and 12% YoY, respectively, in 1QFY18 (Exhibit 9-12). Power and fuel costs were higher on the petcoke/coal price increase (average petcoke/coal prices rose 77%/50% YoY). Freight costs grew on an increase in diesel prices (7% higher YoY) and the busy season surcharge applicable on rail freight. Going forward, Petcoke prices softened in the beginning of 2QFY18, but are still higher by around 23% YoY. The average international coal price is 35% higher YoY, Jul 17-Aug 17. The average diesel price is 5% higher YoY in Jul 17- Aug 17, while the spot price is 14% higher. In the environment of muted demand and increasing costs, we expect margins to decline in 2QFY18. Optimistic outlook on demand recovery in 2HFY18: EBITDA/t in 2QFY18 could be under pressure on: i) escalations in petcoke/coal prices; ii) increased freight costs on higher diesel prices; and iii) lower operating leverage on reduced utilisation (low construction activity due to monsoons). Cement companies are optimistic about demand recovery in 2HFY18 from infrastructure (metro, roads, irrigation and power) and affordable housing. Expansion projects in pipeline; aggressive limestone mine bids by players: Companies under our coverage have an expansion of 25MTPA in the pipeline, most of which is slated to be commissioned in FY19 (18.7MTPA scheduled in FY19). The highest capacity addition is by Shree Cement (13MTPA) and Ultratech (7.5MTPA). Ambuja is in the process of setting up a clinker unit of 1.7MTPA in Rajasthan. 1QFY18 saw aggressive bidding for limestone mines by cement players; Ambuja won the limestone block in Maharashtra at 125% of the mineral value and Dalmia won the limestone block in Chhattisgarh at 96% of the mineral value. Abhishek Anand CFA abhishek.anand@jmfl.com Tel: (91 22) Roshan Paunikar roshan.paunikar@jmfl.com (91 22) Company CMP (INR) TP (INR) Rating Ultratech 3,977 4,550 BUY Shree Cement 17,140,800 HOLD Ambuja HOLD ACC 1,785 1,500 HOLD Dalmia Bharat 2,555 3,100 BUY Ramco Cement HOLD JK Lakshmi BUY JK Cement 1,009 1,170 BUY 1QFY18 operations snapshot Volume (MT) Realn EBITDA/t 1QFY18 4QFY17 1QFY17 % YoY JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet Please see Appendix I at the end of this report for Important Disclosures and Disclaimers and Research Analyst Certification. % QoQ ,474 4,7 4, JM Financial Institutional Securities Limited

2 Volume trends: growth on capacity expansion The uptick in cement volume continued in 1QFY18, predominantly driven by the expansion in cement capacity. Exhibit 1. Playerwise cement trends Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY Commentary UltraTech Ambuja Cement ACC Volume growth on capacity addition Shree Cement Volume growth on capacity addition India Cement Madras Cement Trinetra cement volumes included in Standalone Growth on higher demand from eastern markets JK Lakshmi Volume growth on capacity addition JK Cement Dalmia Bharat (ex OCL) OCL India Orient Cement Heidelberg Low base on account of defunct plant in 1QFY17 Growth on capacity expansion through debottlenecking Mangalam cement Growth on capacity commissioning Sagar Cements Birla Corp Cumulative volumes * %YoY %QoQ Capacity utilisation for the players remained constant at 74% in 1QFY18, indicating a volume growth on account of the expansion in cement production capacity. Exhibit 2. Growth driven by capacity addition Total cement capacity (MTPA) Total Capacity Utilisation (%) 72% 78% 77% 74% 74% 68% 66% 65% 62% Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% The government released its cement production data for Jun 17, reporting a 5.8% YoY decline; it reported a 2.6% YoY decline during 1QFY18. Cement volumes as reported by the companies in 1QFY18 (cumulative volumes of top 14 listed players in the sector capacity share of 64%) indicate volume growth of 5.6% YoY. The data released by the government continues to differ from the sales volume reported by the companies. JM Financial Institutional Securities Limited Page 2

3 Exhibit 3. Disconnect between cement sales and production data DIPP cement industry production data Volumes reported by Companies , Industry Volume Growth (YoY %) Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun' Cumulative volumes (MnT)* %YoY Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun' The volume trends indicate increasing market share for organised players. Market share increased from 60% in Sep 16 to 69% in Jun 17. Exhibit 4. Material change in share of listed players in Industry Listed player sales (MnT) - a All India Production (MnT) - b a/b % 76% 62% 62% 64% 63% 63% 66% 69% 60% 70% % 30% % -10% 20 Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17-30%, Industry JM Financial Institutional Securities Limited Page 3

4 Realisation trends: Price hikes during the quarter Realisations during the quarter, grew 7.6%/8.1% QoQ/YoY, marginally higher than our estimates. In our 4QFY17 review (Robust quarter; multiple headwinds to limit margin expansion) and cement pricing update (GST: Destocking to impact volumes marginally), we highlighted the likelihood of EBITDA/t being impacted positively on realisation growth, with cost escalations likely offsetting the positive impact of realisation growth. Exhibit 5. Company-wise realisation trend Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY UltraTech 4,204 4,130 4,072 3,930 4,093 4,116 4,071 4,162 4, Ambuja Cement 4,190 4,285 4,245 4,057 4,336 4,405 4,324 4,160 4, ACC 4,460 4,530 4,409 4,231 4,356 4,466 4,510 4,402 4, Shree Cement 3,476 3,648 3,457 3,334 3,855 3,969 3,697 3,771 4, India Cement 5,757 5,570 5,413 5,239 5,6 5,391 5,103 5,083 5, Madras Cement 4,938 4,717 4,967 4,636 4,541 4,769 4,682 4,450 4, JK Lakshmi 3,580 3,690 3,681 3,419 3,486 3,618 3,485 3,370 3, JK Cement 3,651 3,788 3,580 3,392 3,705 3,642 3,594 3,720 3, Dalmia Bharat (ex OCL) 5,341 4,979 5,334 5,086 4,495 4,480 4,660 4,890 5, OCL India 4,567 4,456 4,355 4,430 4,659 5,139 4,918 4,518 4, Orient Cement 3,589 3,519 3,209 3,143 3,145 3,273 3,632 3,443 4, Heidelberg 3,660 3,740 3,681 3,571 3,788 3,842 3,693 3,744 3, Mangalam cement 3,465 3,570 3,579 3,285 3,674 3,906 3,607 3,749 4, Sagar Cements 4,2 4,346 3,597 3,343 3,434 3,687 4,039 3,661 4, Birla Corp 3,679 3,642 3,696 3,393 3,846 3,855 3,748 3,899 4, Average realisations 4,220 4,214 4,132 3,971 4,138 4,239 4,177 4,7 4, %YoY %QoQ Orient cement s steep 29% YoY rise in realisations took place on account of a larger proportion of invoicing in FOR terms, which also led to the steep 43% YoY increase in the company s freight costs. Companies with exposure to western and eastern regions of India (Ambuja, Shree, JK Lakshmi, Dalmia) saw better realisation growth vs. the industry. Exhibit 6. Quarterly cement prices across India and region-wise Price hikes helped realisation growth in 1QFY18 West and East witnessed a steep hike in prices in 1QFY18 (Rs/50 kg bag) QFY11 3QFY11 1QFY12 3QFY12 1QFY13 3QFY13 1QFY14 3QFY14 1QFY 3QFY 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 1QFY11 3QFY11 1QFY12 3QFY12 1QFY13 3QFY13 1QFY14 3QFY14 1QFY 3QFY 1QFY16 3QFY16 1QFY17 3QFY17 1QFY18 (Rs/50 kg bag) North East Central South West JM Financial Institutional Securities Limited Page 4

5 Cement price trends; marginal softening in July July 17 witnessed a marginal softening in cement prices (Marginal softening in July MoM; west impacted the most), which in our view could partially be attributed to passing on the benefits of GST implementation to consumers. - Prices in the west saw a steep decline of 5.8% MoM in July - South saw a 2% MoM increase in cement prices - Prices in the north remained largely flat MoM - There was a marginal decline in cement prices in the east - There was a 2.6% MoM decline in the central region As per the management of JK Lakshmi, Chattisgarh government limit the cement prices in the state to INR 230/bag during 2QFY18. Companies have been supplied at the said rate for about 6 weeks. Management has initiated a dialogue with the government and is confident of a resolution within a month. Jul-Sep (2Q) is seasonally a weak quarter for the cement sector, with around 22% of the whole year s sales being realised during the quarter. Exhibit 7. West witnessed a material price decline 410 Southern Eastern Northern Western Central Exhibit 8. Jul-Sep; seasonally weak quarter Quarterwise proportion in cement sales 380 Rs/50kg bag Q (Jan-Mar) 28% 1Q (Apr-Jun) 26% Jul-14 Oct-14 Jan- Apr- Jul- Oct- Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 3Q (Oct-Dec) 24% 2Q (Jul-Sep) 22% JM Financial Institutional Securities Limited Page 5

6 Aug-14 Oct-14 Dec-14 Feb- Apr- Jun- Aug- Oct- Dec- Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jul-17 Cement 22 August 2017 Costs: Commodity prices lead cost escalations Power and fuel costs up 26% YoY The effect of increased petcoke/coal prices in 1QFY18 is clearly visible. Power/fuel costs for the quarter increased 26.1%/8.0% YoY/QoQ. Average international coal prices were nearly 50% higher YoY in 1QFY18, while average petcoke prices were nearly 77% higher YoY during the same period. Exhibit 9. Power and fuel cost trends Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY UltraTech Ambuja Cement ACC 916 1, Shree Cement India Cement 1,123 1,144 1,047 1, ,080 1, Madras Cement JK Lakshmi JK Cement 986 1, Dalmia Bharat (ex OCL) OCL India Orient Cement , Heidelberg 982 1, , , Mangalam cement , Sagar Cements ,086 1,172 1,123 1,379 1,284 1,191 1, Birla Corp , Average Power & Fuel/t %YoY %QoQ Going forward, we expect the power and fuel costs to remain on the higher side on account of higher petcoke and coal prices. The average coal price is 35% higher YoY, Jul 17-Aug 17. Petcoke prices in Jul 17 at USD89/t were 23% higher YoY. Petcoke on a per-kcal basis is still around % cheaper than coal. Exhibit 10. Petcoke/coal prices Coal prices are firming up Petcoke prices still at elevated levels USD/t Average Petcoke prices (USD/t) , Industry, Bloomberg JM Financial Institutional Securities Limited Page 6

7 Aug-14 Oct-14 Dec-14 Feb- Apr- Jun- Aug- Oct- Dec- Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Cement 22 August 2017 Freight cost up 12% YoY The average freight cost was higher 11.8%/3.1% YoY/QoQ during 1QFY18. Freight costs during the quarter were higher on account of a YoY increase in diesel prices (7% higher YoY) and the busy season surcharge applicable on railway freight. Exhibit 11. Freight cost trends Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY UltraTech 1,160 1,100 1,096 1,092 1,087 1,046 1,088 1,123 1, Ambuja Cement ACC 1,101 1,000 1,051 1, ,070 1,108 1,2 1, Shree Cement ,023 1, India Cement 1,055 1,017 1, ,008 1,045 1,006 1,041 1, Madras Cement 1, JK Lakshmi JK Cement , Dalmia Bharat (ex OCL) OCL India Orient Cement Heidelberg Mangalam cement 1,089 1,010 1,003 1,062 1,026 1,1 1,081 1,090 1, Sagar Cements Birla Corp Average Freight costs/t %YoY %QoQ We expect freight costs to still rise on account of higher diesel prices YoY in 2QFY18. - The average diesel price is 5% higher YoY, Jul 17-Aug 17; the diesel spot price is 14% higher YoY. Exhibit 12. Diesel price trends Indian Diesel price - Delhi (Rs/l) 3 years min 3 years max , Bloomberg JM Financial Institutional Securities Limited Page 7

8 Total Cement Costs up 10% YoY Power/fuel and freight cost escalations led to higher total costs during 1QFY18. All companies reported a rise in costs YoY. Exhibit 13. Total cost per ton trends Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY UltraTech 3,4 3,442 3,312 3,045 3,131 3,246 3,286 3,340 3, Ambuja Cement 3,574 3,682 3,697 3,340 3,345 3,798 3,744 3,561 3, ACC 4,021 4,085 4,065 3,670 3,689 4,036 4,111 3,902 3, Shree Cement 2,812 2,792 2,586 2,514 2,593 2,668 2,722 2,952 2, India Cement 4,867 4,574 4,665 4,431 4,309 4,499 4,389 4,441 4, Madras Cement 3,848 3,496 3,467 3,144 3,208 3,239 3,359 3,298 3, JK Lakshmi 3,273 3,299 3,296 3,022 2,931 3,072 3,036 3,057 3, JK Cement 3,420 3,505 3,309 2,882 3,090 3,187 3,139 3,050 3, Dalmia Bharat (ex OCL) 3,885 3,630 3,945 3,667 3,135 3,275 3,531 3,696 3, OCL India 3,597 3,634 3,431 3,247 3,321 3,854 3,637 3,278 3, Orient Cement 2,981 3,8 3,008 2,697 2,854 3,137 3,282 3,007 3, Heidelberg 3,281 3,287 3,3 2,993 3,133 3,244 3,321 3,165 3, Mangalam cement 3,530 3,588 3,420 2,822 2,903 3,445 3,290 3,326 3, Sagar Cements 3,337 3,917 3,207 2,804 2,982 3,167 3,429 3,254 3, Birla Corp 3,413 3,371 3,441 2,965 3,252 3,459 3,465 3,479 3, Average Cement costs 3,556 3,557 3,478 3,184 3,218 3,428 3,468 3,436 3, %YoY %QoQ EBITDA/t: realisation growth offsets cost escalations EBITDA/t marginally higher: Cement EBITDA/t for the industry grew 1% YoY on account of realisation growth offsetting the power/fuel and freight cost escalations. EBITDA/t was higher or lower for the players depending on the extent of realisation growth vs. the extent of cost escalations. With cement prices under pressure on low demand and the monsoon season, cost escalations will impact profitability of cement players in 2QFY18. Exhibit 14. EBITDA/t trends Jun' Sep' Dec' Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY UltraTech , Ambuja Cement , ACC Shree Cement ,262 1, , India Cement Madras Cement 1,090 1,221 1,500 1,492 1,334 1,529 1,323 1,2 1, JK Lakshmi JK Cement Dalmia Bharat (ex OCL) , OCL India ,182 1,338 1,285 1,281 1,240 1, Orient Cement Heidelberg Mangalam cement Sagar Cements Birla Corp Average EBITDA/t %YoY %QoQ JM Financial Institutional Securities Limited Page 8

9 Management guidance: Exhibit. Management guidance Company Industry volume guidance Prices Costs Company commentary Ultratech ACC DBEL India Cement JK Lakshmi cement JK Cement Star Cement Shree Cement The company expects better volumes on the prospects of a normal monsoon, smart cities, urban infrastructure, housing projects and GST implementation Expects 4%-6% demand growth in the region of operations 2QFY18 is expected to be better than 1QFY18; management expects a growth of 6%-7% for full-year FY18 in its region of operations Guided for growth of 5%-6% in 2HFY18; management expects east to grow 8% and north to grow 5%-6% after the monsoons Expects demand to pick up in 2HFY18; full year growth at 10%-12% No cuts have been taken apart from passing on GST-related benefits to consumers Prices will be stable as incremental capacity would be absorbed by demand Prices are stable in 2QFY18 Prices are lower than June exit prices Stable Domestic players have reduced petcoke prices; spot prices of petcoke at USD87-90/t Petcoke prices would remain at USD80 levels; slag prices have been high on lower stock Expects power/fuel prices to be stable in 2QFY18; do not foresee a further increase in petcoke prices Uses coal; do not foresee any change in coal prices 2QFY18 is expected to be challenging Dalmia to outperform the industry Expects a better 2QFY18 vs. 1QFY18 Company is in the process of commissioning 7.5MW of WHR and 20MW of TPP, which is expected to lower costs Expects volume growth of 7%- 8% on a low base Company to do better in 2HFY18 Expects 12% growth in FY18 Capacity expansion in the pipeline Most of the capacities currently in the pipeline are slated to be commissioned after 1HFY18, with a major portion of the pipeline scheduled to come online in FY19. Exhibit 16. Expansion announced Company Location State Region Capacity (MTPA) Commissioning date Ultratech Cement Dhar Madhya Pradesh Central QFY19 Ultratech Cement Bara Uttar Pradesh Central 4.00 FY19 Shree Cement Aurangabad Bihar East QFY18 Shree Cement Aurangabad Bihar East QFY18 Shree Cement Sriganganagar Rajasthan North QFY19 Shree Cement Gulbarga Karnataka South QFY19 Ramco Cement Vizag AP South 1.10 FY19 Ramco Cement Kolaghat WB East 1.10 FY19 Ramco Cement Haridaspur Odisha East 0.90 FY19 JK Lakshmi Durg Chattisgarh East 0.90 FY18 Ambuja Cement Marwar Mudhwa Rajasthan North 1.7* Total 25.1* * clinker capacity not included in the total cement capacity Successful Limestone auctions during the quarter The quarter witnessed aggressive limestone mine bidding - Ambuja won the limestone block in Maharashtra for a record bid of 125% of the mineral value for the limestone block. - Prior to that Dalmia Bharat won the limestone block in Chhattisgarh, paying 96.% of the mineral value for the block. Management indicated that the production of slag cement would help contain cost escalations from limestone usage. JM Financial Institutional Securities Limited Page 9

10 Exhibit 17. Successful limestone auctions Company Name of the mine Location Reserves (MT) Winning bid (% of the mineral extracted) Limestone auction cost per tonne of cement * Winning Year Ambuja Cement Nandgaon ekodi, Maharashtra Maharashtra % Dalmia Bharat Kesla II Raipur, Chattisgarh Chattisgarh % 412.1** May-17 Shree Cement Mudhvay Sub-block B, Lakhpat Taluka, Kachchh District, Gujarat Gujarat % May-17 Adani Cementation Ltd Mudhvay Sub-block C, Lakhpat Taluka, Kachchh District, Gujarat Gujarat % May-17 JSW cement Mudhvay Sub-block D, Lakhpat Taluka, Kachchh District, Gujarat Gujarat % May-17, Industry * assuming limestone value of Rs490/t and limestone to cement ratio of 0.95x; ** slag cement limestone to cement ratio of 0.7x Other Updates Ultratech Ultratech completed the acquisition of Jaiprakash assets on 29June 17. The plants are running at % utilisation currently (INR 400/t EBITDA). Additionally, with the acquisition, Ultratech s capacity share in the central region has become 30%. The company s net debt after acquisition stands at INR 128.7bn (vs. INR 24.2bn net cash) and net debt-to-ebitda stands at 1.87x. ACC ACC announced an interim dividend of INR 11/share. During 1QFY18, the company initiated a study to evaluate a potential merger with Ambuja, for which a special committee has been constituted with majority independent directors. Ambuja ACEM is setting up a 1.7MTPA Greenfield clinker plant at Marwar Mundwa in Rajasthan. Land acquisition for the project is at an advanced stage. The company won the bid for a limestone mine at Nandgaon Ekodi, in Chandrapur, Maharashtra with 42.1 MT of reserves. The winning bid was % of the value of mineral dispatched. ACEM has a 4.5MTPA integrated plant in Chandrapur. The Board has recommended an interim dividend of INR1.6/share. Dalmia Bharat The company reduced its net debt from INR 52.3bn as on 31Mar 17 to INR 46bn as on 30Jun 17 (gross debt reduced from INR 80.6bn to INR 77.3bn during the period). The INR6.4bn reduction in net debt during 1QFY18 was primarily on the receipt of INR 5.9bn from KKR. With this, the company s net debt-to-ebitda stands reduced to 2.4x from 2.8x earlier and its cost of debt has reduced to 8.3% (vs 8.7% in 4QFY17). Schemes of arrangement involving i) Dalmia Cement (Bharat) Ltd and its subsidiaries and ii) amongst Odisha Cement Ltd, Dalmia Bharat Ltd and Dalmia Cement (Bharat) Ltd are pending for sanction by NCLT (Chennai). Ramco Cement Ramco is undertaking grinding capacity expansion in AP, West Bengal and Odisha - i) expansion at its Vizag grinding unit from 0.9MTPA to 2MTPA; ii) expansion at the Kolaghat grinding unit from 0.9MTPA to 2MTPA and; iii) setting up a new grinding unit at Odisha with capacity of 0.9MTPA. 4MTPA split grinding units (2.2MTPA in TN, 0.9MTPA in Kolaghat and 0.9MTPA in Vizag, AP) are operating at 58% capacity utilisation. JM Financial Institutional Securities Limited Page 10

11 JK Lakshmi Cement The company is in the process of installing 7.5MW of WHR and 20MW of thermal power plants in Durg, which are likely to be commissioned in 3QFY18 and 3QFY19, respectively. JK Lakshmi has expansion potential of 2MTPA at all the three locations - Sirohi, Durg and Udaipur. Management expects USD 70-75/t of capital cost required to put up the incremental capacity as the company has clearances and limestone reserves for the same. JK Cement JK Cement s net debt declined INR 770mn, from INR 20.3bn on 31Mar 17 to INR 19.5bn on 30Jun 17; the cost of debt is 10%; its UAE operations have a debt of USD 90mn The company plans to incur capex of INR 2bn-INR 2.5bn during FY18 - INR 250mn on putty expansion in Katni; to be commissioned by June 18 - INR 300mn-INR 400mn on the mining land acquisition - INR 1.75bn on maintenance capex in the existing plants Please click on the links for detailed result notes UltraTech Cement In-line quarter; JPA assets ramp-up key monitorable ACC Volumes steady; Beat primarily on higher other operating income Ambuja Cement Outperformance on realisation growth; medium term concerns remain Shree Cement Realisation led beat; power segment continues to disappoint The Ramco Cements In-line results; announces 3.1MTPA expansion in East India JK Lakshmi Cement Operationally inline; Cost escalation offset strong realisation Dalmia Bharat Operationally inline; Net debt reduced by INR6.4bn JK Cement Mixed operating trends; white cement margins key monitorable JM Financial Institutional Securities Limited Page 11

12 Exhibit 18. Valuation table Company EV/EBITDA (x) EV/tonne (USD) PE (x) PBV (x) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ultratech Cement Ambuja Cement ACC Shree Cement Ramco Cement Dalmia Bharat JK Lakshmi JK Cement Exhibit 19. Valuation charts Ultratech EV/EBITDA chart Ambuja EV/EBITDA chart Rolling EV/EBITDA EV/EBITDA 5 year average (.1x) EV/EBITDA 10 year average (11.2x) EV/EBITDA EV/EBITDA 5 year average (16.3x) EV/EBITDA 10 year average (12.1x) Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- ACC EV/EBITDA chart Shree Cement EV/EBITDA chart Jun-07 Rolling EV/EBITDA EV/EBITDA 5 year average (x) EV/EBITDA 10 year average (11.2x) Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun Jun-07 Jun-08 Rolling EV/EBITDA EV/EBITDA 5 year average (14.3x) EV/EBITDA 10 year average (8.8x) Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- Ramco Cement EV/EBITDA chart Dalmia Bharat EV/EBITDA chart EV/EBITDA EV/E 5 year average (10.9x) EV/E 10 year average (8.7x) Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun- Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr- Oct- Apr-16 Oct-16 Apr-17 EV/EBITDA EV/EBITDA 5 year average (8.6x) EV/E max period average (7.2x) JK Lakshmi EV/EBITDA chart JK Cement EV/EBITDA chart EV/EBITDA EV/EBITDA 5 year average (12.7x) EV/EBITDA 5 year average (8.0x) 12 9 EV/EBITDA EV/EBITDA 5 year average (9.2x) EV/EBITDA 10 year average (6.6x) , Bloomberg JM Financial Institutional Securities Limited Page 12

13 Exhibit 20. Assumptions table Company Capacity (MTPA) Volumes (MT) Realisation (INR/MT) EBITDA/t (INR/MT) Cost/t (INR/MT) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ultratech Cement ,349 4,646 4, ,119 1,260 3,550 3,661 3,764 Ambuja Cement ,456 4,725 4, ,053 3,672 3,777 3,864 ACC ,554 4,784 4, ,007 4,097 4,202 Shree Cement ,120 4,376 4,555 1,142 1,292 1,362 2,981 3,088 3,197 Ramco Cement ,693 4,858 5,028 1,262 1,289 1,333 3,403 3,540 3,669 Dalmia Bharat ,832 5,073 5,327 1,202 1,256 1,311 3,630 3,817 4,016 JK Lakshmi ,658 3,876 4, ,145 3,216 3,297 JK Cement ,775 3,964 4, ,013 4,174 4,337 Exhibit 21. Key financials Company Net Sales (INR mn) EBITDA (INR mn) Net Profit (INR mn) EPS (INR) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ultratech Cement 303, , ,054 65,378 90,362 1,369 26,895 43,175 62, Ambuja Cement 103, , ,758 19,017 25,121 30,794 11,302 16,126 21, ACC 125, ,651 2,613 17,979 21,861 26,047 9,082 11,922, Shree Cement 98, ,322 9,555 26,704 39,652 47,302 14,956 20,591 22, Ramco Cement 44,866 50,739 61,936 13,310 14,660 17,571 7,410 8,266 10, Dalmia Bharat 83,5 94, ,511 21,468 24,5 27,2 5,509 8,294 11, JK Lakshmi 33,683 38,228 42,213 5,093 6,909 8,008 1,651 3,253 3, JK Cement 41,604 48,417 55,833 8,513 10,553 12,551 3,397 4,649 6, Exhibit 22. Key financial ratios Company RoE (%) RoCE (%) Net Debt/EBITDA (x) Net Debt/Equity (x) DPS (INR) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Ultratech Cement Ambuja Cement ACC Shree Cement Ramco Cement Dalmia Bharat JK Lakshmi JK Cement JM Financial Institutional Securities Limited Page 13

14 APPENDIX I JM Financial Institutional Securities Limited Corporate Identity Number: U65192MH1995PLC Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd. SEBI Registration Nos.: BSE - INZ , NSE - INZ and MSEI - INZ , Research Analyst INH Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai , India. Board: Fax: jmfinancial.research@jmfl.com Compliance Officer: Mr. Sunny Shah Tel: sunny.shah@jmfl.com Definition of ratings Rating Meaning Buy Total expected returns of more than %. Total expected return includes dividend yields. Hold Price expected to move in the range of 10% downside to % upside from the current market price. 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