1QFY2013 Result Update | Cement

August 16, 2012

India Cements
Performance Highlights
Quarterly results (standalone)
Y/E Mar (` cr) Net revenue Operating profit OPM (%) Reported Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
4QFY12 1,118 218 19.5 65 % chg qoq 7.4 27.6 365bp (4) 1QFY12 1,061 242 22.8 102 % chg yoy 13.2 14.6 27bp (39.2)

`86 -

1QFY13 1,201 278 23.1 62

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 2,636 2,420 1.2 119/62 238,386 10 17,657 5,363 ICMN.BO ICEM@IN

India Cements (ICEM) posted a 13.2% yoy growth in its standalone net revenue to `1,201cr, which was slightly above our estimates. The top-line growth was mainly driven by a 6.9% yoy improvement in cement realization. IPL franchise revenues too rose by a healthy 44% yoy to `122cr. The net profit fell by 39% yoy to `62cr. During the quarter the company had `20cr of exceptional items related to the IPL franchise and `25cr of forex loss which dragged down the profits. Adjusted for the exceptional items, the PAT was down by 10% on a y-o-y basis. OPM up by a marginal 27bp yoy: Cement volumes grew by a marginal 3.2% yoy. The management indicated that it had to forego volume growth to maintain realization levels. Despite the better realization, the OPM rose by a modest 27bp yoy due to increase in freight and power & fuel costs. Per tonne freight costs rose by ~20% on account of a higher diesel cost, fare hike by railways and higher lead distance. Power and fuel costs were higher on account of power tariff hikes in Andhra Pradesh and Tamil Nadu. Outlook and valuation: We expect ICEM to post a bottom-line CAGR of 14.2% over FY2012-14E. The companys return ratios would remain subdued due to substantial investments in subsidiaries. At the current market price, though the stock is trading at low valuations of EV/tonne of US$62 on FY2014E capacity, we believe this is justified considering the company's unfavorable locational presence. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 25.8 17.8 33.7 22.7

Abs. (%) Sensex ICEM

3m 10.2 10.0

1yr 5.5 27.0

3yr 14.6 (36.1)

Key Financials (Standalone)

Y/E March (` cr) Net sales* % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne (US $) EV/EBITDA (x) FY2011 3,417 (7.3) 40 (88.7) 1.3 10.2 65.8 0.8 1.2 1.6 1.3 69 12.6 FY2012 4,066 19.0 300 649.2 9.8 19.2 8.8 0.8 8.6 7.4 1.2 68 6.5 FY2013E 4,393 8.1 310 3.2 10.1 19.3 8.5 0.7 8.8 7.7 1.2 65 6.1 FY2014E 4,914 11.9 391 26.2 12.7 19.5 6.7 0.7 10.6 8.7 1.0 62 5.3

V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

Source: Company, Angel research; *does not include IPL revenue

Please refer to important disclosures at the end of this report

India Cements | 1QFY2013 Result Update

Exhibit 1: 1QFY2013 performance (Standalone)

Y/E March (` cr) Net Revenue* Net Raw-Material Costs (% of Sales) Power & Fuel (% of Sales) Staff Costs (% of Sales) Freight & Forwarding (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income Recurring PBT Extraordinary expense PBT Provision for Taxation (% of PBT) Reported PAT PATM (%) 1QFY13 1,201 136 11.3 288 24.0 79 6.6 223 18.6 198 16.5 924 278 23.1 95 69 4 117 20 97 35 36.2 62 5.2 4QFY12 1,109 148 12.3 317 26.4 92 7.7 212 17.6 131 10.9 900 209 18.8 64 65 4 85 85 29 33.7 56 5.1 10.1 0.1 14.6 23.3 2.6 32.8 427bp 48.3 7.1 (17.2) 38.1 50.8 5.2 (14.5) (9.3) % chg qoq 8.3 (7.7) 1QFY12 1,061 133 11.1 239 19.9 64 5.3 180 15.0 203 16.9 819 242 22.8 58 62 0.5 123 123 21 16.9 102 9.6 (39.2) (4.4) 12.8 14.6 27bp 63.0 11.8 598.1 (4.5) (20.8) 69.6 (2.7) 23.7 23.6 20.6 % chg yoy 13.2 2.6

Source: Company, Angel Research; Note: * includes IPL revenue

Exhibit 2: Financial performance

(` cr) 1,400 1,200 1,000 800 600 400 200 0 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 55 102 70 56 65 62 0 1,000 1,061 1,092 944 1,118 (%) 40

1,201

30

20

10

Net revenue (LHS)

Source: Company, Angel Research

Net Profit (LHS)

OPM (RHS)

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India Cements | 1QFY2013 Result Update

Exhibit 3: 1QFY2013 Actual vs Angel estimates

(` cr) Net revenue Operating profit OPM (%) Reported net profit
Source: Company, Angel Research

Actual 1,201 278 23.1 62

Estimates 1,152 300 26.1 108

Variation (%) 4.3 (7.5) (298)bp (42.5)

Operating performance
During the quarter, ICEM sold 2.38mn tonne of cement, registering a 3.2% yoy growth. The management indicated that it had to forego volume growth to maintain realization levels. Net realization improved substantially by 6.9% yoy to `4,460/tonne, aided by demand pick-up in south India which rose by 9% on a yo-y basis albeit on a low base. Importantly, the net plant realization (NPR) rose by 5.5% yoy to `3,549/tonne. Even on a sequential basis, the NPR rose by 2.4% on a y-o-y basis. The company has bought a ship at a cost of US$16mn. Raw-material cost per tonne rose by 4% yoy to `572. Power and fuel cost per tonne stood at `1,209, up 16.9% yoy. Power and fuel costs increased on account of increase in power tariffs in both Tamil Nadu and Andhra Pradesh. Freight cost per tonne rose by 19.0% yoy to `935 due to increased costs of petroleum products, higher railway freight charges and higher lead distance. The operating profit per tonne of cement stood flat at `1,035 on y-o-y basis. However, it rose by 21.5% on a q-o-q basis.

Exhibit 4: Per tonne analysis

Particulars (`/tonne) Net Realization/tonne Net Plant Realization/tonne Raw-Material Cost/tonne Power and Fuel Cost/tonne Freight Cost/tonne Other Cost/tonne Operating Profit/tonne Source: Company, Angel Research 1QFY13 4,460 3549 572 1,209 935 830 1,035 4QFY12 4,376 3461 586 1,256 838 519 852 1QFY12 4,172 3369 550 1,034 780 880 1,030 yoy chg (%) 6.9 5.3 4.0 16.9 19.9 (5.7) 0.5 qoq chg (%) 1.9 2.5 (2.4) (3.7) 11.6 59.9 21.5

ICEMs subsidiary, Trinetra Cement (Trinetra) dispatched 0.27mn tonne of cement in 1QFY2013 as against 0.22mn tonne in 1QFY2012.

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India Cements | 1QFY2013 Result Update

Performance of other divisions

The IPL franchise, the shipping business and the windmill division posted revenues of `122cr, `12.5cr and `4cr respectively during the quarter. On the operating front, the IPL franchise posted an EBITDA of `21cr, while the windmill division and the shipping business reported an EBITDA of `7cr and `3cr respectively during the quarter.

Conference call highlights

During 1QFY2013, cement demand in south India rose by 9% yoy due to the pick-up in demand in Tamil Nadu and Kerala. However, the companys volume growth lagged the industry volume growth as it restrained itself from selling at prices below certain threshold levels. The management expects to begin coal mining in its Indonesian mines from September 2012 onwards. It expects the shipments to India to begin a few months later. Power and fuel costs rose by a steep 16.9% yoy during the quarter due to hike in power tariffs in both Tamil Nadu and Andhra Pradesh. The companys newly commissioned captive power plant at Sankar Nagar was in stabilization stage during the quarter and hence did not contribute much towards the power requirement. Going ahead, the management expects the power & fuel costs to reduce due to use of captive power and availability of coal from the Indonesian mines.

Recommendation rationale
Worst plant locations compared to all companies in our coverage universe: About 93% of ICEMs consolidated total capacity is located in Tamil Nadu (TN), Andhra Pradesh (AP) and Rajasthan. As per our estimates, for FY2013E, the capacity situation in TN is expected to be slightly better than the other two, as a large part of its excess of 18.1mt can be supplied to Kerala (where the total deficit is expected to be 8.6mt). However, AP is expected to have India's highest indigenous demand supply gap (42mt) and no nearby supply-deficit state to sell its excess more economically than other states. Further, Rajasthan's net demand supply gap is expected to be huge at 16.4mt, even after factoring in supplies of 16.6mt to nearby supply-deficit states (Punjab, Haryana, Chandigarh, NCR and Uttar Pradesh). Capacities in all these states are expected to witness prolonged utilization and margin pressures.

August 16, 2012

India Cements | 1QFY2013 Result Update

Outlook and valuation

We expect ICEM to post a bottom-line CAGR of 14.2% over FY2012-14E. The companys return ratios would remain subdued due to substantial investments in subsidiaries. At the current market price, though the stock is trading at low valuations of EV/tonne of US$57 on FY2014E capacity, we believe this is justified considering the company's unfavorable locational presence. Hence, we maintain our Neutral recommendation on the stock.

Exhibit 5: Change in estimates

(` cr) Earlier Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT
Source: Company, Angel Research

FY2013E Revised 4,393 3,546 848 265 310 414 124 310 Var (%) 0.7 0.1 3.1 (0.0) (0.3) 2.2 2.2 4.2 Earlier 4,791 3,878 913 278 306 499 150 349 4,364 3,541 822 265 311 405 121 297

FY2014E Revised 4,914 3,957 957 278 292 558 168 391 Var (%) 2.6 2.0 4.8 (0.0) (4.5) 11.9 11.9 11.9

Exhibit 6: Key assumptions

Earlier Estimates FY13E Installed capacity Cement (mtpa) Dispatch growth (%) Realization growth (%)
Source: Company, Angel Research

Revised Estimates FY13E 14.1 6 2 FY14E 14.1 10 2

FY14E 14.1 8 2

14.1 6 1

Exhibit 7: One-year forward EV/tonne

120,000 100,000 EV (` mn) 80,000 60,000 40,000 20,000 0 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

EV/tonne Source: BSE, Company, Angel Research

$40

$60

$80

$100

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India Cements | 1QFY2013 Result Update

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) 1,338 192 86 97 176 3,211 1,716 Tgt. Price (`) Upside (%) FY2014E P/BV (x) 3.0 3.3 0.7 0.8 1.5 3.3 2.7 FY2014E P/E (x) 16.5 15.9 6.7 5.4 9.7 14.2 15.9 FY2012-14E EPS CAGR 7.3 21.4 14.1 41.7 5.8 67.7 9.9 FY2014E EV/tonne^ RoE (%) 19.0 19.8 10.6 14.6 16.9 26.0 18.3 US $ 129 162 63 45 65 101 160

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis

Company Background
India Cements is the largest cement company in south India, with a capacity of 13mtpa spread across four plants each in TN and AP. The company also has a plant at Parli in Maharashtra (1.1mtpa). It has recently commissioned a plant of 1.5mtpa capacity at Banswara in Rajasthan through its subsidiary, Trinetra Cement, thereby taking its consolidated capacity to 15.6mtpa. The company also bought franchise rights of IPL team, Chennai Super Kings, for ten years in 2008 for US$91mn.

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India Cements | 1QFY2013 Result Update

Profit and loss statement standalone

Y/E March (` cr) Net sales % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& amortization EBIT % chg (% of Net Sales) Interest & other charges Other Income (% of PBT) Recurring PBT % chg Extraordinary expense/(inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 3,359 9.9 2,432 357 891 198 986 927 (15.1) 27.6 203 724 (25.0) 21.6 112 115 17.8 727 (17.6) 79 648 216 33.4 432 511 (24.3) 15.2 18.1 18.1 (24.5) 3,687 9.8 2,945 480 999 250 1,215 743 (19.9) 20.1 233 509 (29.7) 13.8 143 121 22.8 488 (32.9) (44) 531 177 33.3 354 311 (39.2) 8.4 10.1 10.1 (44.1) 3,417 (7.3) 3,067 505 1,020 253 1,289 350 (52.9) 10.2 244 106 (79.2) 3.1 142 98 108.5 62 (87.3) (28) 90 22 24.2 68 40 (87.1) 1.2 1.3 1.3 (87.1) 4,066 19.0 3,285 544 1,095 303 1,344 781 123.2 19.2 251 530 399.9 13.0 287 145 37.7 388 527.8 4 384 88 22.9 296 300 649.2 7.4 9.8 9.8 649.2 4,393 8.1 3,546 595 1,116 318 1,517 848 8.5 19.3 265 583 10.0 13.3 310 162 39.0 434 11.8 20 414 124 30.0 290 310 3.2 7.1 10.1 10.1 3.2 4,914 11.9 3,957 672 1,236 334 1,716 957 12.9 19.5 278 679 16.5 13.8 292 172 30.8 558 28.7 558 168 30.0 391 391 26.2 8.0 12.7 12.7 26.2

Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with previous year numbers

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India Cements | 1QFY2013 Result Update

Balance sheet standalone

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Other Long term liab Long term provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 5,314 1,505 3,808 904 159 2,144 85 1,313 745 1,153 990 14 5,875 5,710 1,792 3,919 703 314 2,645 54 1,869 722 1,042 1,602 6,538 5,928 2,093 3,834 288 160 3,655 33 2,870 752 1,035 2,620 6,904 6,502 2,369 4,133 145 852 3,120 3 2,382 736 820 2,300 7,430 6,852 2,634 4,218 145 602 3,241 73 2,373 796 432 2,810 7,775 7,202 2,912 4,290 145 602 3,335 70 2,373 893 502 2,833 7,870 5,875 6,538 282 3,349 3,631 1,988 256 307 3,829 4,136 2,133 269 307 3,783 4,090 1,837 274 195 508 6,904 307 3,760 4,068 2,269 325 160 609 7,430 307 3,905 4,213 2,469 325 160 609 7,775 307 4,101 4,408 2,369 325 160 609 7,870 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Cash flow statement - standalone

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Dec in Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc/(Dec) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc/(Dec) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012 648 203 (165) 115 216 355 (934) (30) 115 (848) 5 177 66 (37) 153 (340) 426 85 531 233 (644) 121 177 (177) (195) (155) 121 (229) 284 145 72 (18) 375 (31) 85 54 90 244 (204) 98 22 11 (553) 154 98 (302) 323 54 (0) 270 (21) 54 33 384 251 290 145 88 693 (431) (692) 145 (978) 432 148 29 254 (30) 33 3 FY2013E 414 265 (440) 162 124 (47) (350) 250 162 62 200 145 55 70 3 73 FY2014E 558 278 (27) 172 168 471 (350) 172 (178) (100) 195 (295) (3) 73 70

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India Cements | 1QFY2013 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.5 2.0 6.5 0.5 2.8 3.6 0.4 5.1 0.7 0.6 2.9 1.8 0.6 2.8 1.9 0.5 2.4 2.3 0.7 38 36 160 89 0.7 40 30 136 121 0.6 50 27 124 221 0.7 46 21 103 219 0.7 45 18 64 209 0.7 45 18 43 204 12.9 15.7 18.4 8.2 9.6 9.7 1.6 1.7 1.2 7.4 7.7 8.6 7.7 7.9 8.8 8.7 8.9 10.6 21.6 66.6 0.6 9.0 3.9 0.5 11.8 13.8 66.7 0.6 5.5 4.6 0.5 6.0 3.1 75.8 0.5 1.2 5.4 0.5 (0.8) 13.0 77.1 0.6 5.7 10.8 0.5 3.2 13.3 70.0 0.6 5.4 9.2 0.6 3.2 13.8 70.0 0.6 6.1 8.5 0.6 4.8 18.1 18.1 22.5 2.3 105.0 10.1 10.1 19.1 2.3 113.0 1.3 1.3 10.2 1.7 113.4 9.8 9.8 17.8 4.8 112.6 10.1 10.1 18.1 4.7 117.4 12.7 12.7 21.8 6.4 123.7 4.7 3.8 0.8 2.7 1.0 3.8 0.6 8.5 4.5 0.8 2.7 1.1 5.3 0.6 65.8 8.4 0.8 2.0 1.2 11.7 0.6 8.8 4.8 0.8 5.6 1.2 6.1 0.6 8.5 4.8 0.7 5.5 1.1 5.8 0.6 6.7 3.9 0.7 7.4 1.0 5.3 0.6 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

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India Cements | 1QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

India Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

August 16, 2012

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