Price survey, production analysis and capacity details

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1 India Equity Research March 27, 2017 Sector Update Emkay Your success is our success Price survey, production analysis and capacity details prices increased by Rs20-25/bag in most parts of the North region in last one month. Our channel checks indicated that cement demand has been most impacted in the North post the announcement of demonetization by the Central government in Nov-16 In the Central region, cement prices increased by Rs10/bag in East/Central UP (Uttar Pradesh) and MP (Madhya Pradesh). In the West UP, prices increased by Rs20-30/bag. Dealers expect improvement in cement demand post formation of new state government In the West region, prices improved by Rs20/bag in Gujarat. prices remained flat in Maharashtra compared to Feb-17. Some improvement in demand is visible in Gujarat markets compared to Jan-17 Price in the East region increased by Rs12-30/bag in most of the cities. In the South region, cement price was down Rs5-15/bag in last one month. Dealers in the South region expect price increase of Rs50/Rs100 per bag in the trade/non-trade segment from 1 st April prices improve in most parts of the country, declines in the South region: Demand across the country has remained impacted over the last few months due to announcement of demonetization by the Central government in Nov-16 and state elections (Punjab, UP, Chhattisgarh, Goa and Manipur) in Feb/Mar 17. In last one month, price is up Rs20-25/bag in the North region, Rs10-30/bag in the Central region. In the East region, price is up Rs12-30/bag in most of the states, except in Orissa where prices have declined by Rs5-7/bag. In the South region, price is down Rs5-20/bag in last one month. In the West region, price is up Rs20/bag in Gujarat markets, however, it is largely flat in the Maharashtra. As per our channel checks, pan-india average price is up 4.6% MoM in Mar-17 led by price hikes in all the regions except the South region. production declines 13.1% YoY in Jan-17, expect volume decline in FY17: production for the month of Jan-17 was down 13.3% YoY to 22.5mt after a decline of 8.7% YoY recorded in the preceding month. We believe that slow-down in demand was primarily due to impact of demonetization and state elections (Punjab, UP, Chhattisgarh, Goa and Manipur). Between Apr-Jan 17 production growth is at 1% YoY against 3.3% YoY growth in Apr-Jan 16. We expect cement consumption to decline by 0.1% in FY17. Top picks: Shree, JK, India s and OCL India Capacity details: Capacities under construction for different regions - Exhibit 9-13, Orders placed since FY14 - Exhibit 14. Financial Snapshot EPS EV/EBITDA (x) P/E (x) FY18E FY19E FY18E FY19E FY18E FY19E ACC* Ambuja s* Grasim Industries India s Madras s Shree s UltraTech JK Lakshmi JK Orient OCL India Mangalam Prism Sanghi Industries Source: Emkay Research, * Y/E December ACC CMP: 1,401 TP: 1,360 Ambuja s CMP: 233 TP: 203 Grasim Industries REDUCE CMP: 1,058 TP: 876 Shree s CMP: 16,311 TP: 15,814 UltraTech CMP: 3,974 TP: 3,583 India s ACCUMULATE CMP: 158 TP: 169 Ramco s REDUCE CMP: 651 TP: 572 JK Lakshmi REDUCE CMP: 435 TP: 360 JK BUY CMP: 889 TP: 916 Orient REDUCE CMP: 128 TP: 122 OCL India ACCUMULATE CMP: 922 TP: 1,043 Mangalam CMP: 300 TP: 302 Prism SELL CMP: 98 TP: 76 Sanghi Industries BUY CMP: 72 TP: 79 Sanjeev Kumar Singh sanjeev.singh@emkayglobal.com Sandeep Dubey sandeep.dubey@emkayglobal.com Emkay Research is also available on Bloomberg EMKAY<GO>, Reuters and DOWJONES. Emkay Global Financial Services Ltd.

2 prices: prices improve in most parts of the country, decline seen in the South region Demand across the country has remained impacted over the last few months due to announcement of demonetization by the Central government in Nov-16 and state elections (Punjab, UP, Chhattisgarh, Goa and Manipur) in Feb/Mar 17. Ban on sand mining in Uttar Pradesh continues to impact the demand there. Apart from that, political turmoil in Tamil Nadu and drought like conditions in Tamil Nadu and Kerala has impacted the demand in the South region. In last one month, price is up Rs20-25/bag in the North region, Rs10-30/bag in the Central region (higher price increase in West UP). In the East region, price is up Rs12-30/bag in most of the states, except in Orissa where prices have decline by Rs5-7/bag. In the South region, price is down Rs5-20/bag in last one month, however, cement dealers have been indicated that there will be steep price hikes (Rs50/bag in the trade segment and Rs100/bag in the non-trade segment) from 1 st April. In the West region, price is up Rs20/bag in Gujarat markets, however, it is largely flat in the Maharashtra markets (some decline in South Maharashtra due to impact of Andhra Pradesh). As per our channel checks, pan-india average price is up 4.6% MoM in Mar- 17 led by price hikes in all the regions except the South region. North region: Price improves across region, demand recovery still away: prices increased by Rs20-35/bag in most parts of North region though there has not been significant recovery in the demand scenario. As per our channel checks, North region have been the most impacted in terms of demand post the announcement of demonetization by the Central government in Nov-16. Dealers in the region expect recovery in cement demand only post the monsoon season. Dealers indicate that the supply in the non-trade segment is limited which has helped price hikes in the region. Central region: Ban on Sand mining continues in UP, prices improve: Demand in the state of UP remained impacted due to state election in Feb/Mar 17 and continued ban on sand mining. Dealers in UP expect some decision on sand mining with the formation of new state government. price in MP, East and Central UP has increased by Rs10/bag in last one month. In the West UP, price hike has been in the range of Rs20-30/bag in last one month. Though, there has not been much improvement in demand conditions till now, dealers are optimistic regarding demand recovery post formation of new state government in UP. West region: Prices improve in Gujarat, stable in Maharashtra: In Gujarat, cement prices increased by 20/bag in most of the cities. In Maharashtra, prices have remained largely flat in last one month. However, dealers in few cities e.g. in Pune are expecting price hikes from 1 st April. We believe that prices in South Maharashtra could improve if there is a price hike in the South region (as indicated by dealers). There has been some improvement in demand in Gujarat markets compared to Jan-17 which has led to price improvement. Demand continues to remain subdued in Maharashtra. East region: Prices improve across cities except Bhubaneswar (Orissa): In the East region, demand remained impacted in West Bengal and Orissa, however, there has been significant improvement in demand in Bihar, Jharkhand and Chhattisgarh markets. In Orissa, demand was impacted in Feb 17 due to panchayat elections. Even now, demand is impacted as contractors have not received payments post the panchayat elections. In West Bengal, dealers indicated that few companies are facing clinker shortage issues which has led to price increase. Dealers in Bihar and Jharkhand indicated that demand has improved from Individual House segments and government projects. In the region, price is up Rs12-30/bag in most of the states, except in Orissa where prices have declined by Rs5-7/bag in last one month. South region: Demand hit by drought in few parts, prices decline: Demand has been impacted due to political turmoil in Tamil Nadu and drought like conditions in Tamil Nadu and Kerala. As per the dealers, demand in the region is primarily driven from the Housing segment. Infra related demand has not yet picked up in Telangana and implementation of announced government projects is missing. price in the region had come down by Rs5-15/bag in last one months. However, dealers have been indicated about steep price hikes (Rs50/bag in the trade segment and Rs100/bag in the non-trade segment) from 1 st April. Emkay Research March 27,

3 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 (Rs/bag) Exhibit 1: Price trend across regions Feb' 17 Mar '17 Oct Nov Dec Jan Transaction Non-trade Non-trade Transaction Non-trade Non-trade Region State City '16 '16 '16 '17 price price OPC price PPC price price OPC price PPC Delhi Delhi NCR Gurgaon Haryana Rohtak North Chandigarh Chandigarh Rajasthan Jaipur Rajasthan Jodhpur Punjab Bhatinda Punjab Ludhiana UP Lucknow UP Meerut UP Bareilly Central UP Kanpur UP Ghaziabad UP Allahabad MP Indore MP Bhopal West Bengal Calcutta Bihar Patna East Jharkhand Ranchi Chhattisgarh Raipur Orissa Bhubaneswar Maharashtra Mumbai Maharashtra Pune West Gujarat Ahmedabad Gujarat Rajkot Gujarat Surat Tamil Nadu Chennai South Kerala Trivandrum Karnataka Bangalore Telangana Hyderabad Source: Dealers, Emkay Research Exhibit 2: Prices improves in the South and West regions; declines in other regions 400 North Central East West South Source: Dealers, Emkay Research Emkay Research March 27,

4 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 (mt) (%) production declines in January, expect muted volume in FY17 production for the month of Jan-17 was down 13.3% YoY to 22.5mt after a decline of 8.7% YoY recorded in the preceding month. We believe that slow-down in demand was primarily due to impact of demonetization and state elections (Punjab, UP, Chhattisgarh, Goa and Manipur). Though, there is no region specific data for demand, our interaction with industry players indicate that demand was impacted mostly in the North and Central regions. In the South region too, demand has come down due to political turmoil in Tamil Nadu and drought like conditions in Tamil Nadu and Kerala. For the period between Apr-Jan 17 production growth is at 1% YoY against 3.3% YoY growth in Apr-Jan 16. We expect demand growth to remain subdued for next 1-2 quarters and believe that the improvement in demand will be seen only post the monsoon season. We expect cement consumption to decline by 0.1% in FY17. Exhibit 3: Better monsoon and flood like situation in many parts impact production growth 30.0 Production yoy growth Source: Office of the Economic Adviser, Industry Emkay Research March 27,

5 Financials and valuation matrix Exhibit 4: Company Financials Company Net Sales EBITDA Adjusted PAT EPS Rs bn FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E ACC* Ambuja s* Grasim Industries India s Ramco s Shree Ultratech JK Lakshmi JK Orient OCL India Mangalam Prism Sanghi Industries Source: Company, Emkay Research; * Y/E December Exhibit 5: Capacity, Volume & Realization Assumptions Company capacity (mtpa) volumes (mtpa) Realization (Rs/t) EBITDA/tonne (Rs/t) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E ACC* ,326 4,536 4, Ambuja s* ,568 4,736 5, India s ,656 4,832 5, ,031 Ramco s ,690 4,911 5,132 1,391 1,410 1,473 Shree ,854 4,034 4,174 1,168 1,210 1,210 Ultratech ,894 4,959 5, ,107 JK Lakshmi ,781 3,991 4, JK ,938 5,116 5, ,029 Orient ,456 3,855 4, OCL India ,086 4,229 4,321 1,014 1,090 1,144 Mangalam ,657 3,897 4, Prism ,184 4,315 4, Sanghi Industries ,604 4,814 4, Source: Company, Emkay Research; * Y/E December Exhibit 6: Valuation Matrix Company Rs bn P/E (x) EV/EBITDA (x) EV/Ton (USD) Mcap Rec Upside (%) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E ACC* 263 Hold Ambuja s* 460 Hold Grasim Industries 510 Accumulate n/a n/a n/a India s 49 Accumulate Ramco s 155 Reduce Shree 568 Hold Ultratech 1090 Hold JK Lakshmi 51 Reduce JK 62 Buy Orient 26 Reduce OCL India 52 Accumulate Mangalam 8 Hold Prism 49 Sell n/a n/a n/a Sanghi Industries 16 Buy Source: Company, Emkay Research; * Y/E December Emkay Research March 27,

6 Annexures Exhibit 7: Summary of region-wise expected capacities Grinding capacity addition over the next two years is higher based on clinker conversion ratio and hence, actual production from new capacities may be lower Region FY15 FY16 FY17E FY18E Total Clinker Clinker Clinker Clinker Clinker North Central East West South Total Source: Equipment Suppliers, Emkay Research Exhibit 8: Region-wise capacities Region FY15 FY16 FY17E FY18E Clinker Clinker Clinker Clinker North Central East West South Total Source: Industry, Company Region-wise capacities under construction Exhibit 9: Capacities under construction in the North region Clinker Mn. Mn. TPD Ton TPH Ton Udaipur (JK Lakshmi ) Dec-17 Shree - Suratgarh Dec Total 2.71 Exhibit 10: Capacities under construction in the Central region Clinker TPD Mn. Ton TPH Mn. Ton Mangalam Sep/ Binani-Kanoria Oct/ Total JP Super Dalla Sep JP-Bara GU I&II Dec Total Emkay Research March 27,

7 Exhibit 11: Capacities under construction in the East region Clinker TPD Mn. Ton TPH Emami (Baloda Bazar, Chhattisgarh) Jul Emami Grinding Units Baloda Bazar (Chhatisgarh) Apr-16/Sep Panagarh, Durgapur (W. Bengal) Mar Shree (Bihar, Ball Jun Mill) 0.99 Kanorai Mar (Bhabua,Kymore,Bihar) 1.16 ACC Jamul Jul Sep ACC-Sindri Sep ACC Jamul (Existing) Total (*-OPC Capacity. It proposes to make slag Sep cement also.) Shree - Aurangabad -II Sep UltraTech-Patliputra Apr Star Mar Emami -Baigunea Mar (Odisha) 2.01 Dalmia Mar Shree - Raipur II (Note 8) Sep JSW Paradip (Orissa) Oct Haldia (W.Bengal) Oct Total Exhibit 12: Capacities under construction in the West region Clinker TPD Mn. Ton TPH Chettinad -Sholapur Mar ABG -GU I (Surat) Mar Total JSW -Dolvi Oct ABG -GU II Mar Total ABG GU III Mar Wonder (Nardane,,Maharashtra) Mar Total 3.75 Mn. Ton 1.19 Mn. Ton Emkay Research March 27,

8 Exhibit 13: Capacities under construction in the South region Clinker TPD Mn. Ton TPH Mn. Ton My Home (Tuticorin, TN) Mar Total NCL (Nagarjuna ) Mar JSW Vijayanagar (A.P) Oct Tuticorin (T.N.) Oct Mecheri (Near Salem, TN) Oct Total TanCemco Dec KCP Ltd (Muktyala II-A.P.) Mar Dec Shree Cem-Gulbarga (Ktaka) Oct Oct Total Emkay Research March 27,

9 Exhibit 14: Orders placed since FY Clinker Capacity Capacity TPD Million Tons TPH Million Tons Month of Order UTC-Aditya III Rajasthan (North) Apr-13 UTC-Jhajjar (GU for Aditya III) Haryana (North) Apr-13 Shree Rajasthan (North) Nov-13 JK Udaipur Udyog Rajasthan (North) Mar-14 Emami (*) Chhatisgarh (East) Odisha (East) Orient K'taka (South) Apr-13 Italcementi Maharashtra (West) Jul-13 Sanghi Gujarat (West) Feb-14 Total Wonder (Line II) Rajasthan (North) * May-14 Emami (*) W. Bengal (East) Oct-14 Kanoria Bihar (East India) 2* Dec-14 Total Chettinad Sholapur (Maharashtra) Apr-15 Penna Dist. Jodhpur (Rajasthan)/ Kathuwas (Haryana) Apr-15 Mangalam Aligarh, U.P May-15 JSW Vijaynagar (A.P.-2 units)/dolvi (Maharashtra-2 units)/ Mecheri (Near Salem, TN)/ 8* Jun-15 Tuticorin/Paradeep/Haldia Shree (Ball mill) Bihar (East India) Jun-15 My Home Tuticorin, TN Aug-15 NCL (Nagarjuna ) Telangana Nov-15 Asian GU Chandigrah/Punjab Dec-15/Jan-16 Green Valley Assam Feb-16 Udaipur ( JK Lakshmi) Udaipur (Rajasthan) Mar-16 Total UltraTech-Patliputra Bihar May-16 Shree - Raipur II (Note 8) Chhatisgarh Apr-16 TanCemco Ariyalur (TN) Jun-16 Shree Cem-Gulbarga (Ktaka) (Note 8) Karnataka Aug-16 Shree - Aurangabad II Bihar Sep-16 Shree Suratgarh (UII) Rajasthan (North) Shree Gulbarga Karnataka Star Assam Sep-16 Dalmia Assam Sep-16 KCP Ltd (Muktyala II-A.P.) A.P Nov-16 UTC-Dhar (Project Pearl) M.P Nov-16 India s (Sankarnagar GU) Jan-17 Wonder (Nardane,,Maharashtra) Feb-17 Total Note: Clinker capacity calculated on 330 days/year. capacity calculated on 330days and 20hrs/day. Feb-14 Emkay Research March 27,

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