Result Update Rating matrix Rating : Buy Target : 2050 Target Period : 12-15 months Potential Upside : 15% What s Changed? Target Changed from 1850 to 2050 EPS CY17E Changed from 58.5 to 60.3 EPS CY18E Changed from 67.5 to 68.1 Rating Unchanged Quarterly Performance Q2CY17 Q2CY16 YoY (%) Q1CY17 QoQ (%) Revenue 3,312.5 2,832.6 16.9 3,099.7 6.9 EBITDA 496.1 415.0 19.5 342.4 44.9 EBITDA (%) 15.0 14.7 33 bps 11.0 393 bps PAT 326.2 246.0 32.6 211.1 54.6 Key Financials Crore CY15 CY16 CY17E CY18E Net Sales 11432.8 10945.6 12581.5 13951.8 EBITDA 1173.0 1291.9 1761.8 2057.4 PAT 587.6 694.9 1132.4 1279.1 EPS ( ) 31.3 37.0 60.3 68.1 Valuation summary CY15 CY16 CY17E CY18E PE (x) 44.6 45.7 29.6 26.2 Target PE (x) 65.6 55.4 34.0 30.1 EV to EBITDA (x) 27.5 24.5 17.9 15.3 EV/Tonne(US$) 175 172 150 150 Price to book (x) 4.0 3.9 3.6 3.3 RoNW (%) 7.0 8.0 12.1 12.6 RoCE (%) 6.0 7.8 11.4 12.4 Stock data Particular Amount Mcap 33503 crore Debt (CY16) 70 crore Cash & Invest (CY16) 1877 crore EV 31695 crore 52 week H/L 1799 / 1257 Equity cap 187.8 crore Face value 10 Price performance (%) 1M 3M 6M 12M ACC 9.8 17.5 32.0 7.9 Ambuja Cement 11.9 6.8 22.8-0.3 Shree Cement 4.0 5.1 25.1 19.4 UltraTech Cement 4.2 5.1 27.2 20.6 Research Analyst Rashesh Shah rashes.shah@icicisecurities.com Devang Bhatt devang.bhatt@icicisecurities.com On high growth track July 18, 2017 ACC (ACC) 1,783 ACC reported a good set of Q2CY17 numbers. The topline beat was led by 10.1% YoY increase in volumes to 6.7 MT (vs. I-direct estimate of 6.5 MT) and 6.2% YoY increase in realisation to 4,915/t (vs. I- direct estimate of 4900/t) Revenues increased 16.9% YoY to 3,312.5 crore (above I-direct estimate of 3,172.9 crore) led by 10.1% YoY increase in volumes due to commissioning of Jamul plant (10% of overall capacity) and better pricing scenario across regions EBITDA margin rose 33 bps YoY to 15.0% (vs. I-direct estimate of 14.4%) due to operating leverage benefit and 13.9% YoY decline in raw material cost. EBITDA/tonne increased 8.6% YoY to 736/t (vs. I- direct estimate of 706/t) Net profit increased 32.6% YoY to 326.2 crore (vs. I-direct estimate of 251.2 crore) mainly due to higher other income Improving demand environment, Jamul expansion key growth drivers Over the past few years ACC reported subdued volume growth (1.3% CAGR in CY10-16) led by a poor macro environment and absence of new capacity additions. However, going forward, we expect cement demand to improve on the back of higher infra spend by govt especially on roads & housing. Consequently, cement demand is expected to reach 311 MT by FY19E (i.e. at CAGR of 7.5%) vs. (CAGR of 4.7% over last five years). Apart from improving macro demand, the company s expansion in the eastern region by ~5 MT (of which 2.8 MT already commissioned at Jamul and rest to come up in Kharagpur) is expected to drive volumes over the next few years (10.3% CAGR in CY16-18E). ACC s acquisition by Ambuja to drive cost synergies The acquisition of ACC by Ambuja is expected to reduce cost through consolidation of shared services (like finance, HR and marketing) vendor consolidation and swapping of plants (to reduce lead distance). The proposed restructuring is expected to result in synergy benefits of ~ 900 crore resulting in long term benefits for ACC and Ambuja. We expect the benefits of synergies to start flowing in from CY17E. margins to further improve led by operational efficiency ACC has one of the oldest manufacturing plants in the industry, leading to higher operating costs for it. However, it is taking steps to rationalise cost by raising usage of low cost fuels. Similarly, use of alternative fuel may rise from the current 3% to 5% in the next 12 months. The company is also focusing on increasing volume of premium products and higher exfactory sales to reduce lead distance resulting in higher margins. On path to recovery; maintain BUY After reporting subdued volume growth (1.3% CAGR in CY10-16), ACC reported double digit volume growth (up 10.1% YoY) in Q2FY17. Going forward, we expect the company to report volume CAGR of 10.3% in CY16-18E mainly led by capacity expansion of 5 MT and an improving demand environment. Further, we expect OPM to improve from 11.8% to 14.7% in CY18E mainly led by cost control initiatives like use of alternative fuels, better sales mix and reduction of employees. Also, with implementation of Good and Service Tax (GST) there will be freight cost rationalisation, which will further lead to margin expansion, going forward. Hence, we maintain our BUY recommendation with a revised target price of 2,050/share (i.e. valuing the stock at CY18E EV/tonne of $174/tonne, 18.0x CY18E EV/EBITDA). ICICI Securities Ltd Retail Equity Research
Variance analysis Q2CY17 Q2CY17E Q2CY16 YoY (%) Q1CY17 QoQ (%) Comments The increase in revenues was mainly led by capacity expansion and a healthy pricing Net Sales 3,312.5 3,172.9 2,832.6 16.9 3,099.7 6.9 scenario in the company's key markets Other Incomes 167.2 70.0 73.6 127.1 106.5 57.0 Raw Material Expenses 503.6 466.2 411.2 22.5 460.7 9.3 Employee Expenses 218.9 195.5 186.5 17.4 195.8 11.8 Change in stock -102.2 0.0 64.1-259.5 4.2 NM Power and fuel 685.2 621.6 522.9 31.0 648.3 5.7 The rise in power cost was mainly due to higher pet coke prices (pet coke consumption increased from 58.0% in Q2CY16 to 65.0% in Q2CY17) Freight 870.4 810.7 649.0 34.1 826.4 5.3 Hike in diesel prices (up 12.0% YoY) and increase in lead distance led to higher freight cost Others 640.5 621.6 583.9 9.7 621.9 3.0 Rise in packaging cost led to higher other expenses EBITDA 496.1 457.3 415.0 19.5 342.4 44.9 EBITDA Margin (%) 15.0 14.4 14.7 33 bps 11.0 393 bps Operating leverage benefit and lower RM cost led to margin expansion in Q2CY17 Interest 21.6 24.2 19.8 8.7 24.2-11.0 Depreciation 163.0 164.0 142.0 14.7 165.9-1.8 The increase in depreciation was due to commissioning of Jamul plant PBT 478.8 339.1 326.7 46.5 258.8 85.0 Total Tax 155.6 89.9 83.0 87.5 49.8 212.7 Adjusted PAT 326.2 251.2 246.0 32.6 211.1 54.6 Increase in other income led to higher PAT during the quarter Key Metrics Volume (MT) 6.7 6.5 6.1 10.1 6.6 2.1 Capacity expansion in the east led to 10.1% YoY growth in volumes Realisation ( ) 4,915 4,900 4,628 6.2 4,696 4.6 Better pricing scenario across regions led to higher realisation EBITDA per Tonne ( ) 736 706 678 8.6 519 41.9 EBITDA/tonne improved led by lower RM cost/t Change in estimates CY17E CY18E ( Crore) Old New % Change Old New %Change Comments Revenue 12,650.0 12,581.5-0.5 14,000.0 13,951.8 Better pricing scenario coupled with macro tailwind is expected to drive -0.3 revenues over the next two years EBITDA 1,750.0 1,761.8 0.7 2,040.8 2,057.4 0.8 EBITDA Margin (%) 13.8 14.0 17 bps 14.6 14.7 17 bps Operating leverage benefit and cost efficiency to drive margins PAT 1,100.0 1,132.4 2.9 1,269.1 1,279.1 0.8 EPS ( ) 58.5 60.3 2.9 67.5 68.1 0.8 Assumptions Current Earlier Comments CY13 CY14 CY15 CY16 CY17E CY18E CY17E CY18E Volume (MT) 23.9 24.2 23.6 23.0 25.5 28.0 26.0 Capacity expansion and improving demand scenario to lead to 10.3% 29.8 CAGR increase in volumes in CY16-18E Realisation ( ) 4,556 4,742 4,838 4,701 4,933 4,983 4,872 4,921 EBITDA per Tonne ( ) 572 518 496 541 691 735 674 686 We expect EBITDA/t of 735/t in CY18E ICICI Securities Ltd Retail Equity Research Page 2
Annual Report Analysis Loss in market share led to volume decline: In CY16, the company expanded its capacity by 2.8 MT, taking the total capacity to 33.4 MT from 30.6 MT in CY15. The new capacity was commissioned in the second half of the calendar year. The new capacity comprises a new clinkering line of capacity 2.79 MT at Jamul and cement grinding units of capacity 1.10 MT at Jamul and 1.35 MT at Sindri. However, despite capacity expansion, ACC registered 2.7% YoY decline in volumes vs. industry growth of 5.0%, which, we believe, is mainly due to a loss in market share. Cost rationalisation helps maintain stable margins: On the cost side, the company undertook various cost saving measures like re-negotiation of fly ash contracts (fly ash cost declined 5.9% YoY), changes in mix optimisation and lower landed cost of gypsum (cost of gypsum declined 10.8% YoY), increased usage of pet coke (increased from 18.0% in CY15 to 62.0% in CY16). Further, ACC was able to reduce cost of generation at captive power plant by 2.4% YoY to 4.56 per KWh in CY16 mainly due to better efficiencies. The average cost of purchased power declined 3.1% YoY to 6.3 per Kwhr in CY16. In addition, rationalisation of advertising expenses (declined by 29.6 crore to 80.6 crore in CY16 mainly due to reduction in various promotional activities) and 10.0% YoY decline in packaging cost per tonne led to 2.4% YoY decline in cost per tonne. The cost structure may further improve in coming years mainly led by better operating cost parameters at newly commissioned Jamul/Sindri plant coupled with higher volumes, reduction in employees (reduced by 535 people to 7,833) and expected synergy benefit for ACC-ACEM over next three years. Depreciation on downward trajectory: During the year, depreciation cost declined 7.2% YoY to 615.1 crore mainly led by full depreciation of few fixed asset. However, it was partly offset by capitalisation of Jamul project in Q3CY16 and Sindri project in Q4CY16. Technical know how fees trend 120.0 107.7 112.91 112.76 107.9 25.00 100.0 20.00 80.0 15.00 60.0 10.00 40.0 20.0 5.00 0.0 0.0 0.00 CY12 CY13 CY14 CY15 CY 16 Technology know how fees as % of PAT Dividend payout ratio 56 55 54 55 54 53 53 53 52 51 51 50 49 48 CY12 CY13 CY14 CY15 CY16 Poor return ratio continues: In the past two years, ACC has clocked average RoE of 7.0%, which is the lowest in the past 10 years mainly due to low utilisation (~71%), higher fixed cost and capacity expansion. Better working capital management: Although there was a marginal increase in inventory days (from 39 days to 40 days), increase in payable days (from 96 days to 110 days) enabled the company to register an improvement in the working capital cycle. As a result of this, the company was able to register 565.3 crore improvement in operating cash flow. Technical know-how fees continue to rise: The company has paid 107.9 crore (increased from nil in CY12 to ~18% of PAT in CY16) as technology know-how fees to Holcim Technology for technical support received by the company. In addition, remuneration, severance to top management, independent directors and non-executive directors accounted for 3% of PAT. Dividend payout remained stable: The company declared a dividend of 17 per share (dividend payout ratio of 53%) in CY16, the same as last year ( 17 per share and dividend payout of 54% in CY15). Dividend payout ratio ICICI Securities Ltd Retail Equity Research Page 3
Company Analysis Regional presence Central 13% North 17% Pan-India presence to reduce regional risk ACC is a pan-india player with an installed capacity of 33.4 MTPA distributed across all regions, thereby insulating the company from any weakness in a particular region. Out of the total capacity, the company has ~10 MTPA capacity in the southern region, ~9 MTPA capacity in the eastern region, ~6 MTPA capacity in the northern region, ~4.5 MTPA capacity in the central region and ~ 4 MTPA capacity in the western region. East 28% West 12% South 30% Higher government spending to drive growth Over the long term, the demand environment looks healthy owing to an increase in the government s focus on infrastructure and higher budgetary allocation to the roads and housing sector. The company has also indicated 7-8% YoY growth in volumes over the next three years mainly led by higher government spending. Recovery in southern region to benefit company ACC has a third of its total capacity in the southern region. With the resolution of political problems in the region along with expectations of an overall recovery in the demand environment, going forward, ACC should benefit from its presence in the southern market. To increase capacity to ~35 MT by CY17E ACC s capacity will be 35 MT by CY17E mainly led by commissioning of Jamul clinker (2.8 MT) & grinding unit (1.1 MT) and Sindhri grinding unit (1.4 MT). Further one more expansion of 2.7 MT is expected in Kharagpur. Higher free operating cash flow sufficient for expansion plans ACC has consistently been generating healthy operating cash flows for many years. Higher operating cash flow has ensured that the company does not require debt for further expansion. At the end of CY13, ACC was a totally debt-free company. Going by the present scenario, the company will not need to raise debt for the planned expansion of 5 MT given strong cash flows. Exhibit 1: Healthy operating cash flow 2200 1700 Crore 1200 700 1343 934 1987 936 1522 1546 1610 200-300 CY12 CY13 CY14 CY15 CY16 CY17E CY18E Operating Cashflow ICICI Securities Ltd Retail Equity Research Page 4
Old, inefficient plants lead to higher cost of production ACC has one of the oldest manufacturing plants in the industry, resulting in higher operating costs for the company. As can be seen from the chart below, its other costs per tonne, which includes maintenance costs of the plants, as percentage of industry average, is much higher than total costs except other costs, on a per tonne basis. For example, for CY08, if the industry s average costs per tonne after deduction of other costs was 100, the same for ACC was 90 while the industry s average other costs per tonne was 100 while that for ACC was 139.9. Higher other costs are the result of older machinery of the company. Exhibit 2: Costs as percentage of industry average costs 150 140 130 120 110 100 90 80 139.9 136.3 90.1 90.0 89.9 124.6 115.9 129.8 102.5 102.4 126.7 106.6 124.8 111.0 120.9 109.8 103.7 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 103.7 Total Costs except Other cost Other Costs but efforts on to improve efficiency and reduce cost To improve efficiency and reduce overall cost, the company has adopted a two-pronged approach. One is phasing out of old and inefficient plants. The second approach is to reduce dependency on power purchase from outside. Captive power plant capacity of the company has increased from ~237 MW in CY08 to ~384 MW till CY12. The company met ~69% of its power requirement through captive sources in CY08 while the remaining is through the state grid while the contribution of captive source increased to ~74% in CY16. This helped reduce overall cost per tonne for the company. Further, with proposed synergies from the Holcim restructuring, we expect efficiencies to improve, going ahead. Exhibit 3: Fuel mix 120 100 80 60 40 20 0 3 3 12 30 18 62 5 44 CY15 5 18 CY16* Linkage Coal E-Auction Coal Petcoke Imported Coal Alternative Fuels, * domestic coal consumption is assumed Exhibit 4: Purchased power share stands at 26.0% in CY16 100 80 (%) 60 69.6 75.3 74.9 71.8 74.4 76.5 75.5 76.0 74 40 20 30.4 24.7 25.1 28.2 25.6 23.5 24.5 24.0 26.0 0 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 Purchased Own Generation ICICI Securities Ltd Retail Equity Research Page 5
Expect revenue CAGR at ~13.6 % during CY16-18E Going forward, we expect revenue CAGR of 13.6% during CY16-18E with volume growth at 10.3% CAGR. Realisation growth is expected at 3.0% CAGR over the same period. The company is well on track on the capacity expansion front and will likely achieve its target of 35 MT by CY17E. Exhibit 5: Expect revenue CAGR of 13.6% during CY16-18E Exhibit 6: Capacity addition plans Existing Capacity (MT) 33 16,000 13952 Planned capacity addition 14,000 11010 10904 11480 11433 12582 12,000 10813 Kharagpur 2.7 9594 10,000 Total 2.7 8,000 Total Capacity by CY17E (MT) 35.7 6,000 4,000 2,000 - CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E Sales ( crore) Exhibit 7: Volume to grow at 10.3% CAGR during CY16-18E Exhibit 8: Realisation to grow 3.0% CAGR during CY16-18E MT 30.0 28.0 26.0 24.0 24.1 23.9 24.2 23.6 23.0 25.5 28.0 / tonne 5500 5000 4500 4566 4556 4742 4838 4701 4933 4983 14.0 12.0 10.0 8.0 6.0 4.0 (%) 22.0 20.0 CY12 CY13 CY14 CY15 CY16 CY17E CY18E 4000 3500 2.0 0.0-2.0-4.0 Sales Volumes CY12 CY13 CY14 CY15 CY16 CY17E CY18E Realisation ( /tonne) -LS Growth (%) -RS Exhibit 9: Q2CY17 volume increases 10.1% YoY Exhibit 10: Realisation during Q2CY17 up 6.2% YoY 6.0 In MT 0.0 6.20 Q2CY15 5.61 Q3CY15 6.00 Q4CY15 6.36 6.12 Q1CY16 Q2CY16 5.07 Q3CY16 5.45 Q4CY16 6.60 6.74 Q1CY17 Q2CY17 10.0 5.0 0.0 (%) -5.0-10.0-15.0-20.0 5500 5000 4500 4000 3500 4776 4884 4744 Q2CY15 Q3CY15 Q4CY15 4517 4628 4877 4834 4696 Q1CY16 Q2CY16 Q3CY16 Q4CY16 Q1CY17 4915 Q2CY17 30.0 20.0 10.0 (%) 0.0-10.0 Sales volumes -LHS Growth (%) -RHS Realisation-LHS Growth (%) -RHS ICICI Securities Ltd Retail Equity Research Page 6
Margins to improve over the coming years With operating leverage benefit and operational efficiency due to cost optimisation the company is expected to report ~300 bps increase in EBITDA margins over CY16-18E. Exhibit 11: Expect EBITDA/tonne of 735 in CY18E Exhibit 12: Margins to improve led by operating leverage benefit 1000 800 600 400 200 0 825 691 735 572 518 496 541 CY12 CY13 CY14 CY15 CY16 CY17E CY18E 25 20 (%) 15 10 17.7 16.9 14.7 14.0 12.6 11.8 10.9 10.3 CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E EBITDA/Tonne EBITDA Margin (%) Exhibit 13: Q2CY17 EBITDA/tonne at 736/t Exhibit 14: Margin trend (%) per tonne 800 700 600 500 400 300 200 100 0 453 469 Q2CY15 Q3CY15 356 Q4CY15 595 Q1CY16 678 Q2CY16 444 412 Q3CY16 Q4CY16 519 Q1CY17 736 Q2CY17 (%) 16 14 12 10 8 6 4 2 0 13.2 14.7 9.1 9.6 9.5 7.5 Q2CY15 Q3CY15 Q4CY15 Q1CY16 Q2CY16 Q3CY16 Q4CY16 EBITDA Margin 11.8 11.0 8.5 Q1CY17 Q2CY17 Expect net profit CAGR of 32.1% during CY16-18E We expect net margins to improve to 9.2% in CY18E from 6.3% in CY16. Overall, we expect net profit to grow at a CAGR of 32.1% in CY16-18E. Exhibit 15: Profitability trend crore 1400 1200 1000 800 600 400 200 0 1094.6 1161.8 10.0 10.1 587.6 5.1 733.5 6.3 1279.1 1132.4 9.0 9.2 12 8 4 0 (%) CY13 CY14 CY15 CY16 CY17E CY18E Net profit - LS Net profit margin -RS ICICI Securities Ltd Retail Equity Research Page 7
Outlook and valuation With a capacity expansion of 2.8 MT in Jamul (Chhattisgarh) and 1.4 MT in Sindri (Jharkhand), we expect CY17 to witness an improvement in the volume growth. We expect sales volume and realisation CAGR of 10.3% and 3.0%, respectively, during CY16-18E. Cement demand is expected to improve over the next few years led by a revival in the rural economy and increased infrastructure spends by the government. Apart from improving macro, capacity expansion of 5 MT (i.e. 16% of capacity) is expected to result in 10.3% CAGR in revenues over CY16-18E. Further, cost control initiatives such as use of alternative fuels, better sales mix and reduction of employees is expected to help the company in margin expansion, going forward. We expect the OPM to improve from 11.8% to 14.7%in CY18E. Hence, we maintain our BUY recommendation with a revised target price of 2,050/share (i.e. valuing the stock at CY18E EV/tonne of $174/tonne, 18.0x CY18E EV/EBITDA). Exhibit 16: Key assumptions per tonne CY13 CY14 CY15E CY16 CY17E CY18E Sales Volume (mtpa) 23.9 24.2 23.6 23.0 25.5 28.0 Net Realisation 4556 4742 4838 4701 4933 4983 Total Expenditure 3984 4224 4342 4161 4243 4248 Stock Adjustment 3-5 0 7-38 0 Raw material 698 819 782 699 734 735 Power & Fuel 996 1010 1014 939 1000 1008 Employees 277 309 327 333 318 330 Freight 963 1065 1144 1146 1281 1225 Others 1048 1026 1074 1036 948 950 EBITDA per Tonne 572 518 496 541 691 735 Source: ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8
Exhibit 17: One year forward EV/EBITDA 82000 72000 62000 52000 42000 32000 22000 12000 2000 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 ( crore) EV 30.0x 25.0x 20.0x 15.0x 5.0x 10.0x Exhibit 18: One year forward EV/tonne 7000 6000 5000 Million $ 4000 3000 2000 1000 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 EV $172 $151 $131 $111 $91 $70 Exhibit 19: Valuation Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) ($) (x) (%) (%) CY15 11432.8 2.7 31.3 3.3 44.6 175.2 27.5 7.0 6.0 CY16 10945.6-4.3 37.0 18.3 45.7 172.1 24.5 8.0 7.8 CY17E 12581.5 14.9 60.3 63.0 29.6 150.4 17.9 12.1 11.4 CY18E 13951.8 10.9 68.1 13.0 26.2 149.6 15.3 12.6 12.4 ICICI Securities Ltd Retail Equity Research Page 9
Recommendation history vs. Consensus estimate ( ) 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Aug-15 Nov-15 Feb-16 May-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Price Idirect target Consensus Target Mean % Consensus with Hold Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Feb-12 The company looks to set up a new clinker production facility of 2.79 MTPA and allied grinding facility at Jamul. The existing clinkering and grinding lines at Jamul May-12 CCI completes probe into alleged cartilsation by 39 cement companies and finds these companies, including ACC, guilty of cartelisation Jun-12 CCI passes an order against several cement manufacturers including ACC and imposes a penalty of 0.5 times the profit for 2009-10 and 2010-11. For ACC, the penalty works out to 1147.59 crore Oct-12 The company's wholly-owned subsidiary company, ACC Concrete Ltd amalgamated with the company Nov-12 Files petition with COMPAT against CCI order that imposed penalty of 1,147.6 crore on ACC Dec-12 Holcim hikes royalty payment to 1% of sales with effect from January 1, 2013 Jul-13 Holcim Group to consolidate its holding in ACC through Ambuja Cements. The transaction will result in Ambuja holding 50% stake in ACC, in which Holcim India currently holds 50.01% Sep-13 To expand its capacity by nearly 4 MTPA in the eastern region in the next three years with an investment of over 3000 crore Oct-14 Suspension of limestone mining operations at Chaibasa and Bargarh Feb-15 Resumption of limestone mining at Chaibasa Plant in Jharkhand Jun-15 Resumption of limestone mining at Bargarh Plant in Odhisa Jul-16 Commisions 2.79 MT clinker facility at Jamul Aug-16 ACC becomes subsidiary of Ambuja Oct-16 Commisions 1.4 MT grinding unit at Sindri, Jharkhand Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Jul-16 Sep-16 Dec-16 Mar-17 Jun-17 1 Holcim Group 31-Mar-17 54.5 102.4 0.0 Promoter 50.34 50.34 54.53 54.53 54.53 2 Life Insurance Corporation of India 31-Mar-17 10.5 19.7-1.5 FII 15.71 16.83 14.36 14.26 14.78 3 J.P. Morgan Asset Management (Hong Kong) Ltd. 31-May-17 2.3 4.4 0.0 DII 17.69 18.39 16.65 16.68 16.23 4 JPMorgan Asset Management U.K. Limited 31-Mar-17 2.3 4.3 0.0 Others 16.26 14.44 14.46 14.53 14.46 5 Aberdeen Asset Management (Asia) Ltd. 31-Dec-16 2.0 3.7 0.3 6 Capital Research Global Investors 31-Mar-17 1.2 2.3 0.0 7 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 0.9 1.7 0.0 8 The Vanguard Group, Inc. 31-May-17 0.8 1.5 0.0 9 BlackRock Institutional Trust Company, N.A. 30-Jun-17 0.8 1.5 0.0 10 ICICI Prudential Asset Management Co. Ltd. 31-May-17 0.7 1.3 0.0 Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Reliance Nippon Life Asset Management Limited 13.07 0.51 Life Insurance Corporation of India -33.07-1.48 Aberdeen Asset Management (Asia) Ltd. 5.47 0.28 Lyxor Asset Management -4.05-0.16 Mirae Asset Global Investments Co., Ltd. 1.74 0.09 BNP Paribas Asset Management Asia Limited -2.07-0.09 Franklin Templeton Asset Management (India) Pvt. Ltd. 1.21 0.05 Caisse de Depot et Placement du Quebec -1.66-0.08 BlackRock Institutional Trust Company, N.A. 0.85 0.03 Eastspring Securities Investment Trust Co. Ltd. -1.54-0.08 Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 10
Financial summary Profit and loss statement Crore (Year-end March) CY15 CY16 CY17E CY18E Total operating Income 11,432.8 10,945.6 12,581.5 13,951.8 Growth (%) -0.4-4.3 14.9 10.9 Raw material 1848.1 1625.7 1775.0 2058.0 Power & Fuel 2396.7 2159.9 2549.8 2822.4 Employees 772.2 765.4 809.7 924.0 Freight 2704.2 2636.1 3267.4 3430.0 Others 2538.6 2466.5 2417.8 2660.0 Total Operating Exp. 10,259.7 9,653.7 10,819.7 11,894.4 EBITDA 1,173.0 1,291.9 1,761.8 2,057.4 Growth (%) -6.5 10.1 36.4 16.8 Depreciation 662.6 615.1 689.0 784.2 Interest 64.6 76.2 94.3 75.0 Other Income 484.2 348.4 563.7 530.0 Exceptional items 164.5 38.6 0.0 0.0 PBT 765.5 910.4 1,542.2 1,728.2 Total Tax 190.0 225.4 418.7 458.0 PAT 587.6 694.9 1,132.4 1,279.1 Adjusted PAT 752.0 733.5 1,132.4 1,279.1 Growth (%) -35.3-2.5 54.4 13.0 EPS ( ) 31.3 37.0 60.3 68.1 Cash flow statement Crore (Year-end March) CY15 CY16 CY17E CY18E Profit after Tax 587.6 694.9 1,132.4 1,279.1 Add: Depreciation 662.6 615.1 689.0 784.2 (Inc)/dec in Current Assets -300.1 4.5-982.4-619.5 Inc/(dec) in CL and Prov. -14.3 207.1 707.1 166.5 CF from operating activities 935.8 1,521.6 1,546.1 1,610.3 (Inc)/dec in Investments 73.6-371.4 0.0 0.0 (Inc)/dec in Fixed Assets -773.5-654.8-1,000.0-1,000.0 Others -67.6 193.6 0.0 0.0 CF from investing activities -767.5-832.7-1,000.0-1,000.0 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 Inc/(dec) in loan funds 0.0-30.0 0.0 0.0 Dividend paid & dividend tax -376.6-376.7-439.7-439.7 Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0 Others -7.5-98.0 0.0 0.0 CF from financing activities -384.1-504.6-439.7-439.7 Net Cash flow -215.8 184.3 106.4 170.6 Opening Cash 309.9 94.1 278.4 384.8 Closing Cash 94.1 278.4 384.8 555.4 Balance sheet Crore (Year-end March) CY15 CY16 CY17E CY18E Liabilities Equity Capital 187.9 188.0 188.0 188.0 Reserve and Surplus 8,233.2 8,453.5 9,146.2 9,985.6 Total Shareholders funds 8,421.2 8,641.4 9,334.2 10,173.6 Total Debt 100.0 70.0 70.0 70.0 Other Liabilities 373.1 562.2 562.2 562.2 Total Liabilities 8,894.2 9,273.6 9,966.4 10,805.8 Assets Gross Block 11,782.3 12,437.1 14,686.9 16,186.9 Less: Acc Depreciation 5,820.8 6,435.9 7,124.8 7,909.0 Net Block 5,961.5 6,001.3 7,562.1 8,277.9 Capital WIP 1,749.8 1,749.8 500.0 0.0 Total Fixed Assets 7,711.4 7,751.1 8,062.1 8,277.9 Investments+Goodwill 1,329.7 1,696.7 1,696.7 1,696.7 Inventory 1,189.4 1,224.6 1,553.6 1,527.2 Debtors 484.4 466.4 629.8 585.7 Loans and Advances 1,935.9 1,908.4 2,369.3 3,071.9 Other Current Assets 55.1 61.0 90.0 77.4 Cash 94.1 278.4 384.8 555.4 Total Current Assets 3,758.9 3,938.8 5,027.5 5,817.6 Creditors 3,146.6 3,374.1 4,119.6 4,190.3 Provisions 759.2 738.7 700.3 796.2 Total Current Liabilities 3,905.8 4,112.9 4,820.0 4,986.4 Net Current Assets -146.8-174.1 207.6 831.2 Application of Funds 8,894.2 9,273.6 9,966.4 10,805.8 Key ratios (Year-end March) CY15 CY16 CY17E CY18E Per share data ( ) EPS 40.0 39.0 60.3 68.1 Cash EPS 66.5 69.7 96.9 109.8 BV 448.1 459.8 496.8 541.4 DPS 17.0 17.0 20.0 20.0 Cash Per Share 5.0 14.8 20.5 29.6 Operating Ratios (%) EBITDA Margin 10.3 11.8 14.0 14.7 PAT Margin 5.1 6.3 9.0 9.2 Inventory days 39.0 40.3 40.3 40.3 Debtor days 14.3 15.9 15.9 15.9 Creditor days 96.0 108.7 108.7 108.7 Return Ratios (%) RoE 8.9 8.5 12.1 12.6 RoCE 11.2 11.1 16.4 16.7 RoIC 8.8 12.0 14.4 14.7 Valuation Ratios (x) P/E 57.0 48.2 29.6 26.2 EV / EBITDA 27.5 24.5 17.9 15.3 EV / Net Sales 2.8 2.9 2.5 2.3 Market Cap / Sales 2.9 3.1 2.7 2.4 Price to Book Value 4.0 3.9 3.6 3.3 Solvency Ratios Debt/EBITDA 0.1 0.1 0.0 0.0 Debt / Equity 0.0 0.0 0.0 0.0 Current Ratio 1.0 1.0 1.0 1.2 Quick Ratio 0.9 0.9 1.0 1.1 ICICI Securities Ltd Retail Equity Research Page 11
ICICIdirect.com coverage universe (Cement) CMP M Cap EPS ( ) EV/EBITDA (x) EV/Tonne ($) RoCE (%) RoE (%) Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E ACC* 1783 2050 Buy 33,510 39.0 60.3 68.1 24.5 17.9 15.3 172 150 150 11.1 16.4 16.7 8.5 12.1 12.6 Ambuja Cement* 268 280 Buy 53,215 4.9 7.4 7.1 32.2 23.2 22.0 190 184 185 3.8 8.1 8.1 5.1 7.4 6.9 UltraTech Cem 4,425 4750 Buy 121,422 95.8 122.9 146.0 24.2 19.4 17.0 285 282 279 12.3 15.3 15.8 11.0 12.7 13.5 Shree Cement 18,169 17800 Hold 63,228 385 550 717 27.1 18.6 14.4 389 371 355 12.3 19.1 20.4 17.4 20.2 21.2 Heidelberg Cem 139 145 Buy 3,150 3.4 7.3 8.7 16.1 9.7 8.9 123 118 115 8.2 16.3 16.9 7.9 15.3 16.8 India Cement 212 245 Buy 6,513 5.4 8.5 11.1 10.9 9.9 8.8 102 100 96 7.5 8.3 9.2 3.3 4.9 6.0 JK Cement 980 1265 Buy 6,853 37.1 50.9 59.2 14.1 11.2 9.8 131 126 115 12.6 15.1 16.6 14.5 16.1 16.2 JK Lakshmi Cem 469 525 Hold 5,520 7.0 10.8 19.8 19.5 13.6 10.8 102 92 84 7.5 10.8 13.7 5.9 8.5 13.5 Mangalam Cem 380 425 Buy 1,014 12.9 31.1 37.7 11.6 6.9 6.0 55 50 49 10.9 18.4 19.7 6.8 14.2 14.9 Star Cement 128 115 Hold 5,198 4.1 6.5 6.9 14.3 9.9 9.5 254 247 244 13.8 19.8 19.0 14.0 18.7 17.2 *December year ending ICICI Securities Ltd Retail Equity Research Page 12
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13
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