EBITDA 6,223 6,511 (4.4) 5, EBITDA

Result Update Institutional Equities Ambuja Cements 26 July 218 Reuters: ABUJ.BO; Bloomberg: ACEM IN Performance Beats Expectations, Sustainability Is Key Challenge Ambuja Cements (ACEM) reported steady revenue growth of 5.7% YoY at Rs3.2bn in, driven by volume growth. ACEM s volume at 6.41mt (above our estimate of 6.6.2mt), grew 5.6% YoY driven by strong demand in the eastern region. ACEM s realisation remained flat YoY/marginally higher QoQ at Rs 4,77/tn (Rs4,73/tn in ) against expectations of weakness because of higher sales to the individual house-building segment (83% of total sales in trade/retail segment). Contribution from sales of premium products also helped ACEM to maintain realisation YoY. Capacity utilisation improved to 88% in from 83% in, helping ACEM to control operating cost inflation to 2.9% YoY at Rs3,734/tn, largely because of lower other expenses which offset the impact of higher energy, logistics and raw material costs. However, EBITDA declined ~4% YoY to ~Rs6.2bn because of strong base-quarter performance (~Rs6.5bn in ). Effectively, EBITDA margin declined to 2.6% YoY (above our estimate of 16.8%), from 22.8% in and EBITDA/tn was pushed down by ~1% YoY to Rs971/tn (Rs1,73/tn in ). However, higher other income (contributed by ACC s diyidend) of Rs1.91bn pushed ACEM s PAT up by 27.3% YoY to Rs4.99bn. We have valued ACEM on the basis of SOTP valuation (based on replacement cost), valuing the standalone business at a replacement cost of Rs8.2bn/mt and have arrived at a target price of Rs233 (Rs227 earlier). We have retained Accumulate rating on the stock. Capacity utilisation reaches 88%: ACEM volume grew 5.6% contributed by sales in northern region (including central India) and the eastern region. The capacity utilisation touched 88% in. ACEM sold.4mt clinker in.this implies optimum capacity utilisation of the kilns and ACEM will have to rely on external clinker or source it through ACC for any further volume expansion till it adds its own capacity. Operating costs inch up by ~3% YoY: Operating costs/tn edged up by ~ 3% YoY to Rs 3,734because of higher energy, logistics and raw material costs. Logistic costs rose to Rs1,37/tn from Rs1,216/tn because of higher inter-clinker movement. Energy costs, adjusted with raw material costs, increased 3% YoY because of higher fuel prices. However strong other expenditure control is reflected in the decline to Rs4.74bn (Rs5.1bn in ) offsetting the inflation in other heads. Despite this, EBITDA/tn declined ~1% to Rs971 and EBITDAM fell to 2.6% (22.8% in ) because of outstanding base quarter () performance. Retain our estimates; introduce CY2 earnings estimate: We have retained our CY18E/CY19E EPS at Rs8.7/Rs9.7, respectively, and have introduced CY2E expecting 19% EPS growth tot Rs11.6. We have factored in volume/realisation growth of 5%/3%, respectively, for CY2E, given ACEM s capacity constraints. The new capacity is expected to be commissioned in 2HCY2 and hence we have not factored any contribution in our estimates. Outlook and rating: We have valued ACEM on the basis of SOTP valuation (based on replacement cost), valuing the standalone business at a replacement cost of Rs 8.2bn/mt and have arrived at a target price of Rs233 (Rs227 earlier). We have retained Accumulate rating on the stock. NBIE Values your patronage- Vote for The Team in the Asia Money poll 218. Click Here ACCUMULATE Sector: Cement CMP: Rs224 Target Price: Rs233 Upside: 4% Milind Raginwar Research Analyst milind.raginwar@nirmalbang.com +91-22-6273 8172 Key Data Current Shares O/S (mn) 1,985.6 Mkt Cap (Rsbn/US$bn) 443.8/6.5 52 Wk H / L (Rs) 292/189 Daily Vol. (3M NSE Avg.) 3,371,13 Price Performance (%) 1 M 6 M 1 Yr Ambuja Cements 5.4 (15.) (15.6) Nifty Index 3.7.9 11.4 Source: Bloomberg Y/E December (Rsmn) YoY % QoQ % Net sales 3,169 28,545 5.7 28,626 5.4 Operating expenses (23,946) (22,35) 8.7 (23,555) 1.7 EBITDA 6,223 6,511 (4.4) 5,71 22.7 EBITDA margin (%) 2.6 22.8 (218.) 17.7 291.3 Other income 1,911 56 241.3 57 276.8 Interest costs 192 165 16.4 257 (25.4) Depreciation 1,364 1,439 (5.2) 1,393 (2.) PBT 6,578 5,467 2.3 3,928 67.5 Non-recurring items - - - - - PBT (after non-recurring items) 6,578 5,467 2.3 3,928 67.5 Tax 1,586 1,544 2.7 1,11 56.9 Reported PAT 4,993 3,923 27.3 2,918 71.1 Adjusted PAT 4,993 3,923 27.3 2,918 71.1 NPM (%) 16.5 13.7 28.7 1.2 635.6 Adjusted EPS (Rs) 2.5 2. 27.3 1.5 71.1

Exhibit 1: Operational details YoY % QoQ % E Deviation % Volume (mnmt) 6.41 6.7 5.6 6.22 3.1 6.2 3.4 Cement realisation (Rs/mt) 4,77 4,651 1.2 4,595 2.4 4,575 2.9 Operating costs (Rs/mt) 3,734 3,641 2.5 3,787 (1.4) 3,86 (1.9) EBITDA (Rs/mt) 971 1,1 (3.9) 814 19.3 769 26.3 Exhibit 2: Detailed financials (Rsmn) YoY % QoQ % E Deviation % Net sales 3,169 28,545 5.7 28,626 5.4 28,37 6.3 Expenditure Change in stock 784 79 896.8 586 33.7 21 273.1 Raw material (2,882) (2,379) 21.2 (2,74) 6.6 (2,698) 6.8 purchased products (14) - n.a - n.a - n.a Power & fuel costs (6,547) (5,647) 15.9 (6,351) 3.1 (6,251) 4.7 Freight costs (8,784) (7,375) 19.1 (8,288) 6. (8,142) 7.9 Employee costs (1,758) (1,697) 3.6 (1,696) 3.7 (1,655) 6.2 Other expenses (4,744) (5,16) (5.4) (5,12) (7.) (5,67) (6.4) Total operating expenses 23,946 22,35 8.7 23,555 1.7 23,63 1.5 EBITDA 6,223 6,511 (4.4) 5,71 22.7 4,768 3.5 EBITDA margin (%) 2.6 22.8 (218) 17.7 291 16.8 382 Other income 1,911 56 241.3 57 277 55 247.4 Interest costs 192 165 16.4 257 (25) 245 (21.6) Depreciation 1,364 1,439 (5.2) 1,393 (2) 1,38 (1.2) PBT 6,578 5,467 2.3 3,928 67 3,693 78.1 Non-recurring items - - - - - - - PBT (after non-recurring items) 6,578 5,467 2.3 3,928 67 3,693 78.1 Tax 1,586 1,544 2.7 1,11 57 96 65.1 Reported PAT 4,993 3,923 27.3 2,918 71 2,733 82.7 Adjusted PAT 4,993 3,923 27.3 2,918 71 2,733 82.7 NPM (%) 16.5 13.7 281 1.2 636 9.6 692 Adjusted EPS (Rs) 2.5 2. 27.3 1.5 71 1.4 82.7 Exhibit 3: Trend in operating costs/mt Costs per mt (Rs) YoY % QoQ % Raw material costs 348 286 57 39 379 539 188 34 327 (13.6) (3.7) Power and fuel costs 799 927 816 892 93 982 1,98 1,19 1,21 9.8.2 Freight costs on sales 873 9 887 931 949 954 1,12 1,25 1,52 1.9 2.7 Inward freight costs 256 274 249 296 266 262 319 36 318 19.5 4. Total costs per mt 3,333 3,698 3,737 3,59 3,63 3,996 3,7 3,781 3,734 2.8 (1.3) 2 Ambuja Cements

Exhibit 4: Key changes to our estimates (Rsmn) Old New Change (%) CY18E CY19E CY18E CY19E Introducing CY2E Net sales 251,496 272,15 251,496 272,15 298,834 - - Operating profit 41,925 45,825 41,996 45,889 52,854.2.1 Net profit 17,247 19,349 17,246 19,34 22,975 - (.2) EPS (Rs) 8.69 9.74 8.69 9.72 11.57 - (.2) Target price (Rs) 227 233 Rating Accumulate Accumulate Source: Nirmal Bang Institutional Equities Research CY18E CY19E Exhibit 5: ACEM s target valuation ACEM s SOTP valuation: @ 2% holding company discount Based on CY19 capacity a) Target replacement cost (US$) 12 b) Currency Assumption (Rs/$) 68 c) Target replacement cost (Rs) 8,16 d) Total capacity (mt) 29.3 e) Target EV (Rsmn) 238,68 f) Total net debt (Rsmn) (16,558) g) Target m-cap (Rsmn) 255,238 h) Total equity shares O/S (mn) 1,552 i) Target price (Rs) 164 j) ACC target m-cap 269,563 k) ACEM s holding in ACC (5.5%) 134,916 l) Holding co. discount (2%) 28,332 m) Total equity shares O/S (mn) 1,552 n) ACEM's value in ACC (Rs/share) 68.7 o) Target price (Rs) 233.1 Source: Nirmal Bang Institutional Equities Research 3 Ambuja Cements

Jan-6 Sep-6 May-7 Feb-8 Oct-8 Jun-9 Mar-1 Nov-1 Jul-11 Apr-12 Dec-12 Aug-13 May-14 Jan-15 Sep-15 Jun-16 Feb-17 Oct-17 Jul-18 Jan-6 Sep-6 May-7 Feb-8 Institutional Equities Oct-8 Jun-9 Mar-1 Nov-1 Jul-11 Apr-12 Dec-12 Aug-13 May-14 Jan-15 Sep-15 Jun-16 Feb-17 Oct-17 Jul-18 Exhibit 6: Valuation charts EV/EBITDA (Rs) 45 375 3 225 15 75 EV/tn (Rs) 4 3 2 1 Price 5 9 13 17 Price $12 $16 $2 $24 $28 4 Ambuja Cements

Institutional Equities Exhibit 7: Cement capacity utilisation touches 88% in Exhibit 8: Premium products help sustain realisation YoY 1 2 4,8 15 8 5 6. 4.9 5.5 6. 5.9 4.6 5.1 6. 6.1 5. 5.9 6.2 6.41 15 1 4,6 4,4 4,2 1 5 3 5 4, (5) 3,8 (1) (3) (5) 3,6 (15) (5) Volumes (mn mt) Exhibit 9: Performance weak on strong base quarter show (1) Realisations (Rs/mt) Exhibit 1: Controlled other expenditure helps offset cost inflation 1,2 1, 8 6 4 2-57 656 552 713 988 71 579 64 1,1 616 75 814 971 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5-12 1 8 6 4 2 (2) (4) (6) (8) (1) EBITDA/mt Operating costs/mt (Rs) Exhibit 11: Inflation in pet-coke prices drive energy costs higher 1,6 2 1,4 1,331 1,333 1,37 1,21 1,227 1,131 1,124 1,168 1,129 1,174 1,215 1,216 1,2 1,136 15 1, 1 8 5 6 4 2 (5) Exhibit 12: Inter-unit clinker transport pushes freight costs up 1,2 1,98 4 982 992 1,21 1,21 982 1, 927 93 3 892 858 812 799 816 2 8 1 6 4 (1) 2 (2) - (1) - (3) Freight costs/mt (Rs) Power & Fuel costs/mt (Rs) 5 Ambuja Cements

Financials Exhibit 13: Income statement Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY2E Net sales 21,16 23,936 251,496 272,15 298,834 Growth (%) 114.5 14.9 8.9 8.2 9.8 Operating expenses (172,264) (197,481) (213,58) (23,49) (25,47) EBITDA 31,251 38,575 41,996 45,889 52,854 Growth (%) 1.7 23.4 8.9 9.3 15.2 Depreciation &amortisation (14,632) (12,195) (11,975) (12,6) (12,841) EBIT 21,741 29,66 32,669 36,553 42,697 Other income 5,122 3,226 2,648 2,669 2,685 Interest paid (1,45) (2,58) (2,85) (1,952) (1,949) Extraordinary/Exceptional items - - - - - PBT 19,95 27,549 3,584 34,61 4,749 Tax (5,76) (8,229) (8,283) (9,351) (1,958) Effective tax rate (%) (29) (3) (27) (27) (27) Net profit 14,19 19,32 22,31 25,249 29,791 Minority interest (2,979) (4,158) (5,54) (5,945) (6,816) Reported Net profit 11,211 15,163 17,246 19,34 22,975 Non-recurring items (386) - - - - Adjusted Net profit 11,597 15,163 17,246 19,34 22,975 Growth (%) 34.4 3.7 13.7 11.9 19. Exhibit 15: Balance sheet Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY2E Cash & Bank balances 16,962 37,642 59,64 82,19 95,18 Other Current assets 89,28 99,334 1,859 111,756 121,316 Investments 1,35 2,41 1,241 1,251 1,257 Net fixed assets 218,547 214,876 211,796 2,34 24,588 Goodwill & intangible assets 1,37 779 778 777 776 Other non-current assets - - - - - Total assets 327,329 354,671 374,313 396,313 422,955 Current liabilities 77,246 9,835 93,624 96,5 99,465 Borrowings 318 331 347 364 383 Other non-current liabilities 1,534 11,392 11,62 11,853 12,9 Total liabilities 88,97 12,558 15,591 18,717 111,937 Share capital 3,971 3,971 3,971 3,971 3,971 Reserves & surplus 191,483 22,75 213,484 226,275 242,737 Shareholders' funds 239,232 252,113 268,722 287,596 311,17 Minority interest 43,778 46,8 51,267 57,35 64,39 Total equity & liabilities 327,33 354,671 374,313 396,313 422,955 Exhibit 14: Cash flow Y/E December (Rsmn) CY16 CY17 CY18E CY19E CY2E Pre-tax profit 19,95 27,549 3,584 34,61 4,749 Depreciation 11,392 (133,912) 11,975 12,6 12,841 Chg in working capital 1,849 17,537 3,731 (5,37) (5,12) Total tax paid 4,416 (2,433) (8,55) (9,119) (1,721) Other operating activities - - - - - Operating CF 127,67 (19,259) 38,235 32,181 37,767 Capital expenditure (256,179) 138,111 (8,894) (549) (17,88) Chg in investments (5,69) 1,237 (1,668) (2,724) (1,5) Other investing activities - - - - - Investing CF (261,869) 139,348 (1,562) (3,273) (18,587) FCF (134,262) 3,89 27,673 28,98 19,18 Equity raised/(repaid) 11,435 (66) 689 - - Debt raised/(repaid) 32 12 17 17 18 Dividend (incl. tax) (6,17) (9,677) (6,513) (6,513) (6,513) Other financing activities (22,59) 2,771 - - - Financing CF 122,74 (9,49) (5,675) (6,357) (6,351) Net chg in cash & bank bal. (11,522) 2,68 21,998 22,55 12,828 Closing cash & bank bal 16,962 37,642 59,64 82,19 95,18 Exhibit 16: Key ratios Y/E December CY16 CY17 CY18E CY19E CY2E Profitability and return ratios (%) EBITDAM 15.4 16.3 16.4 16.6 17.4 EBITM 1.7 12.5 12.8 13.2 14.1 NPM 5.8 6.6 6.9 7.1 7.7 RoE 6.8 6.2 6.6 6.9 7.7 RoCE 12.1 11.5 12. 12.6 13.7 RoIC 1.7 12.5 12.8 13.2 14.1 Per share data (Rs) O/s shares 1,985.7 1,985.7 1,985.7 1,985.7 1,985.7 EPS 5.8 7.6 8.7 9.7 11.6 FDEPS 5.8 7.6 8.7 9.7 11.6 CEPS 13.2 13.8 14.7 15.8 18. BV 12.5 127. 135.3 144.8 156.6 DPS 2.8 3.2 2.8 2.8 2.8 Valuation ratios (x) PE 38.4 38.4 29.3 25.8 23. P/BV 1.9 1.9 1.8 1.7 1.5 EV/EBITDA 12.8 12.8 9.9 8.5 7.3 EV/Sales 2. 2. 1.7 1.4 1.2 Other key ratios D/E (x) (.2) (.2) (.2) (.3) (.4) DSO (days) 14 15 14 14 14 Du Pont Analysis - RoE NPM (%) 5.8 5.8 6.6 6.9 7.1 Asset turnover (x).9.9.7.7.7 Equity Multiplier (x) 1.4 1.4 1.4 1.4 1.4 RoE (%) 6.8 6.8 6.2 6.6 6.9 6 Ambuja Cements

Apr-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Institutional Equities Rating track Date Rating Market price (Rs) Target price (Rs) 26 March 218 Accumulate 228 227 6 July 218 Accumulate 27 227 26 July 218 Accumulate 224 233 Rating track graph 3 28 26 24 22 2 18 Not Covered Covered 7 Ambuja Cements

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