Result Update Rating matrix Rating : Buy Target : 1850 Target Period : 12-15 months Potential Upside : 18% What s Changed? Target Changed from 1680 to 1850 EPS CY17E Changed from 61.2 to 63.7 EPS CY18E Changed from 65.2 to 67.5 Rating Unchanged Quarterly Performance Q1CY17 Q1CY16 YoY Q4CY16 QoQ Revenue 3,099.7 2,872.7 7.9 2,634.6 17.7 EBITDA 342.4 378.6-9.5 224.5 52.5 EBITDA 11.0 13.2-213 bps 8.5 253 bps PAT 211.1 231.7-8.9 129.5 63.0 Key Financials Crore CY15 CY16 CY17E CY18E Net Sales 11432.8 10945.6 13447.5 14640.0 EBITDA 1173.0 1266.3 1849.8 2040.8 PAT 587.6 668.6 1196.6 1269.1 EPS ( ) 31.3 35.6 63.7 67.5 Valuation summary CY15 CY16 CY17E CY18E PE (x) 39.0 41.5 24.5 23.1 Target PE (x) 59.2 52.0 29.1 27.4 EV to EBITDA (x) 24.0 22.3 14.9 13.1 EV/Tonne(US$) 153 153 131 128 Price to book (x) 3.5 3.4 3.1 2.9 RoNW 7.0 7.7 12.7 12.4 RoCE 6.0 6.9 11.4 11.5 Stock data Particular Mcap Debt (CY16) Cash & Invest (CY16) EV Amount 29350 crore 740 crore 1877 crore 28213 crore 52 week H/L 1738 / 1257 Equity cap 187.8 crore Face value 10 Price performance 1M 3M 6M 12M ACC 7.3 13.9-6.1 3.0 Ambuja Cement 2.9 10.7-4.7 6.6 Shree Cement 9.2 13.7 1.6 35.5 UltraTech Cement 0.2 15.4 0.0 19.0 Research Analyst Rashesh Shah rashes.shah@icicisecurities.com Devang Bhatt devang.bhatt@icicisecurities.com Operationally good performance April 24, 2017 ACC (ACC) 1,562 ACC s Q1CY17 numbers were above our estimates due to a higherthan-expected topline. The beat on the topline was led by 3.8% YoY increase in volumes to 6.6 MT, which came in as a positive surprise against 15.0% YoY decline in pan-india production volumes in the first two months of CY17 as per core industry data Revenues increased 7.9% YoY to 3,099.7 crore (above I-direct estimate of 2,631.7 crore) led by 3.8% YoY increase in volumes to 6.6 MT (above I-direct estimate of 5.6 MT) due to commissioning of the Jamul plant and 4.0% YoY increase in realisation to 4,696/tonne (vs. I-direct estimate of 4,718/tonne) EBITDA margin declined 213 bps YoY to 11.0% (vs. I-direct estimate of 7.2%) due to higher freight (up 13.4% YoY) and power & fuel cost (up 14.1% YoY). EBITDA/tonne declined 12.8% YoY to 519/t (better than our estimate of 338/t due to operating leverage benefit) Expansion in east, improving government demand to boost growth Over the past few years, ACC has reported subdued volume growth (1.3% CAGR in CY10-16) led by a poor macro environment and absence of new capacity addition. However, going forward, we expect cement demand to improve on the back of higher infra spend by the government especially in roads and housing. Consequently, cement demand is expected to reach 323 MT by FY19E (i.e. at 7.0% CAGR) vs. (5.4% CAGR in last five years). Apart from improving macro demand, the company s expansion in the eastern region by ~5 MT is expected to drive volumes over the next few years (13.7% CAGR in CY16-18E). ACC 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. cost rationalisation to further improve margins ACC has one of the oldest manufacturing plants in the industry, resulting in higher operating costs for the company. However, ACC is taking steps to rationalise cost by increasing usage of low cost fuels. Similarly, usage of alternative fuel is expected to rise from the current 3% to 5% over the next 12 months. The company is also focusing on increasing the volume of premium products and higher ex factory sales to reduce lead distance, resulting in higher margins. Improving fundamentals; maintain BUY 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 13.7% CAGR in revenues in CY16-18E. Further, cost control initiatives such as use of alternative fuels, better sales mix and reduction of employees is expected to help ACC in margin expansion, going forward. We expect the OPM to improve from 11.0% to 13.9%in CY18E. Further, ACC is trading at an EV/tonne of $130, far below the replacement cost of $150.Hence, we maintain our BUY rating with a revised target price of 1,850/share (i.e. valuing the stock at CY18E EV/tonne of $150/tonne on CY18E capacity of 35 MT). ICICI Securities Ltd Retail Equity Research
Variance analysis Q1CY17 Q1CY17E Q1CY16 YoY Q4CY16 QoQ Comments The increase in revenues was mainly due to 3.8% YoY increase in volumes and 4.0% Net Sales 3,099.7 2,631.7 2,872.7 7.9 2,634.6 17.7 YoY increase in realisation Other Incomes 106.5 125.0 105.9 0.5 93.9 13.4 Raw Material Expenses 460.7 412.8 436.8 5.5 379.8 21.3 Employee Expenses 195.8 212.0 182.8 7.1 200.0-2.1 Change in stock 4.2 0.0 8.3-49.1 15.8 NM Power and fuel 648.3 566.2 568.0 14.1 532.4 21.8 The increase in power cost was mainly due to higher pet coke prices (pet coke consumption increased from 48.0% in Q1CY16 to 65.0% in Q1CY17) Freight 826.4 638.7 728.5 13.4 663.3 24.6 Higher lead distance to procure fly ash and hike in diesel prices led to increase in freight cost Others 621.9 613.6 569.9 9.1 618.8 0.5 Rise in packaging cost and higher maintenance cost for klin shutdown led to rise in other expenses EBITDA 342.4 188.5 378.6-9.5 224.5 52.5 EBITDA Margin 11.0 7.2 13.2-213 bps 8.5 253 bps Increase in power & fuel cost and freight expenses led to lower margins Interest 24.2 17.6 18.0 35.0 19.8 22.5 Depreciation 165.9 159.0 144.4 14.9 168.8-1.7 The increase in depreciation was due to commissioning of Jamul plant PBT 258.8 136.9 322.1-19.7 129.8 99.4 Total Tax 49.8 41.1 94.4-47.3 5.0 897.4 Adjusted PAT 211.1 99.3 231.7-8.9 129.5 63.0 The decline in PAT was mainly due to higher depreciation expenses Key Metrics Volume (MT) 6.6 5.6 6.4 3.8 5.5 21.1 Volumes improved due to commissioning of Jamul Plant Realisation ( ) 4,696 4,718 4,517 4.0 4,834-2.8 Better pricing scenario in north and central led to higher realisation EBITDA per Tonne ( ) 519 338 595-12.8 412 25.9 EBITDA/tonne declined due to higher power & fuel cost/tonne Change in estimates CY17E CY18E ( Crore) Old New % Change Old New %Change Comments Revenue 13,122.9 13,447.5 2.5 14,286.9 14,640.0 2.5 Revenues to improve led by capacity expansion EBITDA 1,777.0 1,849.8 4.1 1,955.2 2,040.8 4.4 EBITDA Margin 13.5 13.8 21 bps 13.7 13.9 24 bps Cost rationalisation to drive margins PAT 1,149.1 1,196.6 4.1 1,225.7 1,269.1 3.5 EPS ( ) 61.2 63.7 4.1 65.2 67.5 3.6 Assumptions Current Earlier Comments CY13 CY14 CY15 CY16 CY17E CY18E CY17E CY18E Volume (MT) 23.9 24.2 23.6 23.0 27.6 29.8 27.0 29.1 Capacity expansion and improving demand scenario to drive volumes Realisation ( ) 4,556 4,742 4,838 4,717 4,872 4,921 4,869 4,918 EBITDA per Tonne ( ) 572 518 496 538 670 686 659 673 We expect EBITDA/t of 686/t in CY18E ICICI Securities Ltd Retail Equity Research Page 2
Annual Report Analysis Loss in market share leads to volume decline: In CY16, the company expanded its capacity by 2.8 MT, taking 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 loss in market share. Cost rationalisation helps maintain stable margins: On the cost side, the company undertook various cost saving measures like renegotiation 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 its 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 kwh 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 the 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 a 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 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) and increase in payable days (from 96 days to 110 days) enabled the company to register an improvement in working capital cycle. As a result, the company was able to register 565.3 crore improvement in operating cash flow. Technical know how fees continue to rise: The company 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 it. 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, 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 East 22% Regional presence Central 14% West 13% North 19% South 32% Pan-India presence to reduce regional risk ACC is a pan-india player with an installed capacity of 30.5 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, ~6.2 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. Higher government spending to drive growth Over the long term, the demand environment looks healthy, owing to an increase in government focus on infrastructure and higher budgetary allocation to the roads & 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 Sindri 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 The company 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 936 825 2139 2132 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 CY07, if the industry s average costs per tonne after deduction of other costs was 100, the same for ACC was 91. The industry s average other costs per tonne was 100 while that for ACC was 143.3. 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 90 143.3 139.9 136.3 90.5 90.1 90.0 89.9 124.6 115.9 103.7 102.5 129.8 102.2 126.0 106.9 124.1 114.0 107.7 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 80 Total Costs except Other cost Other Costs Exhibit 3: Fuel mix 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. As a result, ACC has reduced power usage per tonne from 85 kwh in CY07 to 80 kwh in CY14. The second approach is to reduce dependency on power purchase from outside. The 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 CY07 and the remaining through the state grid while the contribution of captive source increased to ~77% in CY15. This helped reduce the overall cost per tonne for the company. Further, with proposed synergies from the Holcim restructuring, we expect efficiencies to improve, going ahead. Exhibit 4: Purchased power share stands at 23.0% in CY15 120 100 1 3 80 25 30 60 16 2 17 40 5 56 20 44 0 CY14 CY15 Linkage Coal E-Auction Coal Petcoke Imported Coal Alternative Fuels 100 80 60 68.6 69.6 75.3 74.9 71.8 74.4 76.5 75.5 77.0 40 20 31.4 30.4 24.7 25.1 28.2 25.6 23.5 24.5 23.0 0 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15* Purchased Own Generation ICICI Securities Ltd Retail Equity Research Page 5
Exhibit 5: Expect revenue CAGR of 16.2% during CY16-18E 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-9594 11010 10904 11480 11433 10850 Expect revenue CAGR at ~16.2% during CY16-18E Going forward, we expect revenue CAGR of 16.2% in CY16-18E with volume growth at 13.7% CAGR. Realisation growth is expected at 2.1% CAGR in 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. 13447 14640 CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E Sales ( crore) Exhibit 6: Capacity addition plans Existing Capacity (MT) 33 Planned capacity addition Kharagpur 2.7 Total 2.7 Total Capacity by CY17E (MT) 35.7 Exhibit 7: Volume to grow at 13.7% CAGR during CY16-18E Exhibit 8: Realisation to grow at 2.1% CAGR during CY16-18E 30.0 29.8 5500 14.0 MT 28.0 26.0 24.0 24.1 23.9 24.2 23.6 23.0 27.6 / tonne 5000 4500 4566 4556 4742 4838 4717 4872 4921 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: Q1CY17 volume increases 3.8% YoY Exhibit 10: Realisation during Q1CY17 up 4.0% YoY 6.0 In MT 5.82 6.20 5.61 6.00 6.36 6.12 5.07 5.45 6.60 10.0 5.0 0.0-5.0 5500 5000 4500 4958 4776 4884 4744 4517 4689 4877 4834 4696-10.0 4000 0.0 Q1CY15 Q2CY15 Q3CY15 Q4CY15 Q1CY16 Q2CY16 Q3CY16 Q4CY16 Q1CY17-15.0-20.0 3500 Sales volumes -LHS Growth -RHS 30.0 20.0 10.0 0.0 Q1CY15 Q2CY15 Q3CY15 Q4CY15 Q1CY16 Q2CY16 Q3CY16 Q4CY16 Q1CY17-10.0 Realisation-LHS Growth -RHS ICICI Securities Ltd Retail Equity Research Page 6
Margins to improve but high operating cost to limit its expansion Despite an expected recovery in demand, we expect ACC s operating margins expansion to be limited due to higher operating costs on account of freight costs and legacy plants. Exhibit 11: Expect EBITDA/tonne of 686 in CY18E Exhibit 12: Margins to improve led by operating leverage benefit 1000 800 600 400 200 0 825 670 686 572 518 496 538 CY12 CY13 CY14 CY15 CY16 CY17E CY18E 25 20 15 10 17.7 16.9 13.8 13.9 12.6 11.6 10.9 10.3 CY11 CY12 CY13 CY14 CY15 CY16 CY17E CY18E EBITDA/Tonne EBITDA Margin Exhibit 13: Q1CY17 EBITDA/tonne at 519/t Exhibit 14: Margin trend per tonne 800 700 600 500 400 300 200 100 0 713 Q1CY15 453 469 Q2CY15 Q3CY15 356 Q4CY15 595 Q1CY16 670 Q2CY16 444 412 Q3CY16 Q4CY16 519 Q1CY17 16 14 12 10 8 6 4 2 0 14.3 14.4 13.2 11.6 9.5 7.5 9.1 8.5 9.6 Q1CY15 Q2CY15 Q3CY15 Q4CY15 Q1CY16 Q2CY16 Q3CY16 Q4CY16 Q1CY17 EBITDA Margin Expect net profit CAGR of 34.0% in CY16-18E After witnessing a sharp decline in profit in CY15, we expect net margins to improve to 8.7% in CY18E from 6.1% in CY16. Overall, we expect net profit to grow at a CAGR of 34.0% during CY16-18E. Exhibit 15: Profitability trend crore 1400 1200 1000 800 600 400 200 0 1094.6 1161.8 1196.6 1269.1 10.0 10.1 587.6 707.2 8.9 8.7 6.1 5.1 CY13 CY14 CY15 CY16 CY17E CY18E 12 8 4 0 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 CY16 to witness an improvement in the volume growth. We expect sales volume and realisation CAGR of 13.7% and 2.1%, 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 13.7% CAGR in revenues in CY16-18E. Further, cost control initiatives such as use of alternative fuels, better sales mix, reduction of employees are expected to help ACC in margin expansion, going forward. We expect OPM to improve from 11.0% to 13.9%in CY18E. Further, ACC is trading at an EV/tonne of $130, far below the replacement cost of $150.Hence, we maintain our BUY rating with a revised target price of 1,850/share (i.e. valuing the stock at CY18E EV/tonne of $150/tonne on CY18E capacity of 35 MT). Exhibit 16: Key assumptions per tonne CY13 CY14 CY15E CY16 CY17E CY18E Sales Volume (mtpa) 23.9 24.2 23.6 23.0 27.6 29.8 Net Realisation 4556 4742 4838 4717 4872 4921 Total Expenditure 3984 4224 4342 4179 4202 4235 Stock Adjustment 3-5 0 7 2 0 Raw material 698 819 782 709 698 785 Power & Fuel 996 1010 1014 939 982 1020 Employees 277 309 327 334 297 330 Freight 963 1065 1144 1146 1252 1100 Others 1048 1026 1074 1043 972 1000 EBITDA per Tonne 572 518 496 538 670 686 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 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 ( crore) EV 30.0x 25.0x 20.0x 15.0x 5.0x 10.0x Exhibit 18: One year forward EV/tonne 7000 6000 Million $ 5000 4000 3000 2000 1000 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-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 39.0 152.7 24.0 7.0 6.0 CY16 10945.6-4.3 35.6 13.8 41.5 153.2 22.3 7.7 6.9 CY17E 13447.5 22.9 63.7 79.0 24.5 131.0 14.9 12.7 11.4 CY18E 14640.0 8.9 67.5 6.1 23.1 127.7 13.1 12.4 11.5 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 May-15 Aug-15 Nov-15 Feb-16 May-16 Jul-16 Oct-16 Jan-17 Apr-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 Feb-12 May-12 Jun-12 Oct-12 Nov-12 Event 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 CCI completes probe into alleged cartilsation by 39 cement companies and finds these companies, including ACC, guilty of cartelisation 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 The company's wholly-owned subsidiary company, ACC Concrete Ltd amalgamated with the company 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 Sep-13 Oct-14 Feb-15 Jun-15 Jul-16 Aug-16 Oct-16 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% To expand its capacity by nearly 4 MTPA in the eastern region in the next three years with an investment of over 3000 crore Suspension of limestone mining operations at Chaibasa and Bargarh Resumption of limestone mining at Chaibasa Plant in Jharkhand Resumption of limestone mining at Bargarh Plant in Odhisa Commisions 2.79 MT clinker facility at Jamul ACC becomes subsidiary of Ambuja 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 %) Mar-16 Jul-16 Sep-16 Dec-16 Mar-17 1 Holcim Group 31-Dec-16 54.5 102.4 94.0 Promoter 50.30 50.34 50.34 54.53 54.53 2 Life Insurance Corporation of India 31-Dec-16 11.3 21.2 0.0 FII 14.84 15.71 16.83 14.36 14.26 3 JPMorgan Asset Management U.K. Limited 31-Dec-16 2.3 4.3-0.1 DII 18.38 17.69 18.39 16.65 16.68 4 J.P. Morgan Asset Management (Hong Kong) Ltd. 28-Feb-17 2.3 4.3 0.0 Others 16.48 16.26 14.44 14.46 14.53 5 Aberdeen Asset Management (Asia) Ltd. 31-Dec-16 2.0 3.7 0.3 6 Capital Research Global Investors 31-Dec-16 1.2 2.3 0.0 7 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-17 1.1 2.1 0.2 8 The Vanguard Group, Inc. 28-Feb-17 0.8 1.4 0.0 9 BlackRock Institutional Trust Company, N.A. 31-Mar-17 0.7 1.4 0.1 10 ICICI Prudential Asset Management Co. Ltd. 28-Feb-17 0.7 1.3-0.3 Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Holcim Group 1841.18 93.98 ICICI Prudential Asset Management Co. Ltd. -5.85-0.28 Aberdeen Asset Management (Asia) Ltd. 5.47 0.28 FIL Investment Management (Hong Kong) Limited -4.01-0.20 Franklin Templeton Asset Management (India) Pvt. Ltd. 5.33 0.24 Lyxor Asset Management -3.76-0.17 Mirae Asset Global Investments (Hong Kong) Limited 3.12 0.16 L&T Investment Management Limited -2.52-0.12 Birla Sun Life Asset Management Company Ltd. 2.77 0.12 JPMorgan Asset Management U.K. Limited -1.47-0.08 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 13,447.5 14,640.0 Growth -0.4-4.3 22.9 8.9 Raw material 1848.1 1647.6 1930.6 2335.4 Power & Fuel 2396.7 2159.9 2711.1 3034.5 Employees 772.2 769.2 818.7 981.8 Freight 2704.2 2636.1 3455.7 3272.5 Others 2538.6 2466.5 2681.4 2975.0 Total Operating Exp. 10,259.7 9,679.3 11,597.6 12,599.1 EBITDA 1,173.0 1,266.3 1,849.8 2,040.8 Growth -6.5 7.9 46.1 10.3 Depreciation 662.6 615.1 689.0 784.2 Interest 64.6 73.8 79.7 79.9 Other Income 484.2 344.0 425.9 550.0 Exceptional items 164.5 38.6 0.0 0.0 PBT 765.5 882.8 1,507.1 1,726.7 Total Tax 190.0 223.6 318.2 457.6 PAT 587.6 668.6 1,196.6 1,269.1 Adjusted PAT 752.0 707.2 1,196.6 1,269.1 Growth -35.3-6.0 69.2 6.1 EPS ( ) 31.3 35.6 63.7 67.5 Cash flow statement Crore (Year-end March) CY15 CY16 CY17E CY18E Profit after Tax 587.6 668.6 1,196.6 1,269.1 Add: Depreciation 662.6 615.1 689.0 784.2 (Inc)/dec in Current Assets -300.1 4.5-1,553.9 1,352.5 Inc/(dec) in CL and Prov. -14.3-462.9 1,807.5-1,273.5 CF from operating activities 935.8 825.3 2,139.2 2,132.3 (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 0.0 640.0 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 -7.5-71.7 0.0 0.0 CF from financing activities -384.1 191.7-439.7-439.7 Net Cash flow -215.8 184.3 699.5 692.6 Opening Cash 309.9 94.1 278.4 977.9 Closing Cash 94.1 278.4 977.9 1,670.5 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 9,210.4 10,039.8 Total Shareholders funds 8,421.2 8,641.5 9,398.4 10,227.8 Total Debt 100.0 740.0 740.0 740.0 Other Liabilities 373.1 562.2 562.2 562.2 Total Liabilities 8,894.2 9,943.7 10,700.6 11,530.0 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 1,744.9 1,488.0 Debtors 484.4 466.4 705.2 570.2 Loans and Advances 1,935.9 1,908.4 2,663.7 1,728.3 Other Current Assets 55.1 61.0 100.4 75.3 Cash 94.1 278.4 977.9 1,670.5 Total Current Assets 3,758.9 3,938.8 6,192.1 5,532.3 Creditors 3,146.6 2,704.1 4,487.5 3,341.9 Provisions 759.2 738.7 762.9 635.0 Total Current Liabilities 3,905.8 3,442.9 5,250.4 3,976.8 Net Current Assets -146.8 495.9 941.8 1,555.4 Application of Funds 8,894.2 9,943.7 10,700.6 11,530.0 Key ratios (Year-end March) CY15 CY16 CY17E CY18E Per share data ( ) EPS 40.0 37.6 63.7 67.5 Cash EPS 66.5 68.3 100.3 109.3 BV 448.1 459.8 500.2 544.3 DPS 17.0 17.0 20.0 20.0 Cash Per Share 5.0 14.8 52.0 88.9 Operating Ratios EBITDA Margin 10.3 11.6 13.8 13.9 PAT Margin 5.1 6.1 8.9 8.7 Inventory days 39.0 40.3 40.3 40.3 Debtor days 14.3 15.9 15.9 15.9 Creditor days 96.0 97.6 97.6 97.6 Return Ratios RoE 7.0 7.7 12.7 12.4 RoCE 6.0 6.9 11.4 11.5 RoIC 8.8 10.3 15.2 15.2 Valuation Ratios (x) P/E 50.0 43.9 24.5 23.1 EV / EBITDA 24.0 22.3 14.9 13.1 EV / Net Sales 2.5 2.6 2.0 1.8 Market Cap / Sales 2.6 2.7 2.2 2.0 Price to Book Value 3.5 3.4 3.1 2.9 Solvency Ratios Debt/EBITDA 0.1 0.6 0.4 0.4 Debt / Equity 0.0 0.1 0.1 0.1 Current Ratio 1.0 1.1 1.2 1.4 Quick Ratio 0.9 1.1 1.0 1.0 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) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E ACC* 1562 1850 Buy 29,356 31.3 35.6 63.7 24.0 22.3 14.9 153 153 131 6.0 6.9 11.4 7.0 7.7 12.7 Ambuja Cement* 248 280 Buy 49,244 5.2 4.9 5.7 30.8 29.7 28.6 170 175 172 7.9 3.8 5.1 7.8 5.1 5.8 UltraTech Cem 4,108 4300 Buy 112,724 79.3 90.1 63.9 26.7 24.6 32.1 286 272 273 10.8 11.8 7.5 10.5 10.5 7.2 Shree Cement 17,820 17000 Hold 62,014 202 366 565 45.7 26.9 17.9 386 359 359 6.5 12.3 18.5 10.9 16.8 20.8 Heidelberg Cem 137 135 Hold 3,059 1.7 1.8 3.6 13.4 19.7 18.7 124 120 113 8.4 6.0 6.2 6.8 4.3 4.4 India Cement 203 175 Buy 6,236 4.3 5.9 8.5 11.7 11.3 9.4 99 98 95 8.5 8.8 10.4 4.0 4.8 6.5 JK Cement 950 990 Hold 6,643 15.4 32.7 31.4 18.1 14.3 14.9 127 124 125 8.9 12.2 11.4 6.3 12.6 10.6 JK Lakshmi Cem 474 550 Buy 5,579 2.0 6.9 12.3 20.2 26.4 18.4 144 123 88 7.8 5.4 9.0 7.2 1.8 5.8 Mangalam Cem 377 340 Buy 1,006-7.8 13.0 25.2 39.5 12.1 7.9 69 55 53 1.7 9.4 15.2 NA 6.8 11.8 SFCL 140 115 Hold 3,114 4.1 4.5 4.4 9.7 10.3 8.8 173 173 170 12.0 11.8 12.3 12.3 12.0 11.0 *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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