2QCY2013 Result Update | Cement

August 5, 2013

ACC
Performance Highlights
Quarterly results (Standalone)
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

BUY
CMP Target Price
Investment Period
1QCY2013 % chg qoq 2,911 492 16.9 438 (4.0) (0.5) 61bp (40.8) 2QCY2012 2,778 688 24.8 418 % chg yoy 0.6 (28.9) (728)bp (38.0)

`1,176 `1,361
12 Months

2QCY2013 2,795 489 17.5 259

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 22,078 (1,907) 0.8 1515/1107 33,031 10 19,164 5,678 ACC.BO ACC@IN

For 2QCY2013 ACCs results were below expectations on the bottom-line front. The company posted a 37.9% yoy decline in net profit to `259cr (vs our estimate of `270cr). The EBITDA fell by 28.9% on a yoy basis. OPM at 17.5%, down 728bp yoy: ACCs top-line rose by 0.6% on yoy basis to `2,795cr, with volumes increasing by 1.2% on a yoy basis. On a like-for-like basis (adjusting for the sales of RMC business included in standalone financials since 4QCY2012), the top-line declined by ~3.5%. The tepid performance on the volume front was on account of the poor macro-economic scenario which resulted in weak cement demand. Further, the early arrival of monsoon prevented the pre-monsoon spurt in cement demand, generally witnessed in the month of June. The OPM stood at 17.5% down 728bp on yoy basis. Poor operational performance and lower other income resulted in a steep fall in the bottom-line. Outlook and valuation: We expect ACC to register a 7.2% yoy growth in its top-line over CY2012-14. The bottom-line is expected to post a CAGR of 4.5% over the same period. At current levels, the stock is trading at an EV/tonne of US$94 on CY2014E capacity. We recommend a Buy on the stock with a target price of `1,361.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 11.5 19.9 18.3

Abs. (%) Sensex ACC

3m

1yr

3yr 6.0 41.9

(2.9) 11.0 (5.9) (11.1)

Key financials (Standalone)

Y/E Dec. (` cr) Net sales % chg Adj. Net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/tonne (US$)* Installed capacity (mtpa) EV/EBITDA (x) CY2011
9,439 22.3 1,304 16.4 20.1 69.4 17.0 3.1 19.1 17.7 2.1 122 30 10.3

CY2012
11,129 17.9 1,404 7.7 19.8 74.7 15.7 3.0 19.3 19.0 1.7 109 30 8.7

CY2013E
11,354 2.0 1,201 (14.4) 17.6 63.9 18.4 2.8 15.6 16.0 1.7 99 30 9.4

CY2014E
12,782 12.6 1,532 27.5 19.3 81.5 14.4 2.5 18.2 20.0 1.4 94 30 7.3

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Source: Company, Angel Research ;Note: *adjusted for CPP; CMP as on August 3, 2013

Please refer to important disclosures at the end of this report

ACC | 2QCY2013 Result Update

Exhibit 1: 2QCY2013 performance (Standalone)

Y/E Dec. (` cr) Net Revenues Other Operating Income Total Operating Income Net Raw-Material Cost (% 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 PBT (ecl. Extr. items) Extr. Income/(Expense) PBT (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) Source: Company, Angel Research 2QCY13 2,795 56 2,851 478 17.1 591 21.1 172 6.2 578 20.7 543 19.4 2,362 489 17.5 18 139 35 368 368 109 29.5 259 9.3 1QCY13 2,911 45 2,956 434 14.9 650 22.3 161 5.5 617 21.2 602 20.7 2,464 492 16.9 11 138 103 445 445 8 1.7 438 15.0 (40.8) (577)bp (17.4) 1,342.2 (4.2) (0.5) 61bp 65 0.3 (65.9) (17.4) (9.9) (6.3) 6.7 (9.0) % chg qoq (4.0) 24.0 (3.6) 10.0 2QCY12 2,778 38 2,815 302 10.9 604 21.7 136 4.9 574 20.7 512 18.4 2,127 688 24.8 30 136 78 601 601 183 30.4 418 15.0 (38.0) (578)bp (38.8) (40.6) 813 117 14.3 697 12.2 11.0 (28.9) (728)bp (40.6) 2.3 (55.2) (38.8) 6.1 0.6 27.0 (2.1) % chg yoy 0.6 48.5 1.3 58.5 1HCY13 5,706 101 5,807 912 16.0 1,241 21.7 334 5.8 1,194 20.9 1,145 20.1 4,826 981 17.2 29 277 138 813 1HCY12 5,601 104 5,704 669 11.9 1,280 22.9 268 4.8 1,137 20.3 1,018 18.2 4,371 1,333 23.8 62 266 144 1,150 (335.4) 814 241 29.6 573 10.2 21.5 197bp (0.1) (51.6) 10.4 (26.4) (661)bp (53.5) 4.1 (4.5) (29.3) 12.5 5.1 24.6 (3.1) % chg yoy 1.9 (2.9) 1.8 36.4

Exhibit 2: Financial performance

3,500 3,099 3,000 2,500 (` cr) 2,000 1,500 1,000 500 0 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 2QCY13
Net Sales Reported PAT OPM (RHS)

26 2,860 2,503 2,778 2,445 2,956 2,795 24 22 20 18 16 14 470 155 418 249 239 438 259 12 10 (%)

Source: Company, Angel Research

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ACC | 2QCY2013 Result Update

Exhibit 3: 2QCY2013 Actual vs Angel estimates

(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual 2,795 489 17.5 259

Estimates 2,736 464 16.6 270

Variation (%) 2.1 5.4 90bp (4.0)

Performance highlights
Top-line flat on a yoy basis
ACCs top-line rose by 0.6% on a yoy basis to `2,795cr, with volumes increasing by 1.2% on a yoy basis. On a like-for-like basis (adjusting for the sales of RMC business included in standalone financials since 4QCY2012), the top-line declined by ~3.5%. The tepid performance on the volume front was on account of the poor macro-economic scenario which resulted in weak cement demand. Further, the early arrival of monsoon prevented the pre-monsoon spurt in cement demand, generally witnessed in the month of June.

OPM down on a yoy basis

The OPM stood at 17.5% down 728bp on a yoy basis, impacted by lower realization, surge in input costs and also due to the impact of low margin RMC business on overall financials. Higher input costs were on account of increase in prices of raw materials and higher other costs.

Per-tonne analysis
During 2QCY2013, ACCs realization/tonne fell by 4.4% yoy to `4,389. Power & fuel cost/tonne fell 3.2% yoy to `966. The freight cost/tonne stood at `944, down 0.6% yoy. The operating profit/tonne stood at `799, down 29.7% yoy.

Exhibit 4: Operational performance

Parameter (`) Realization/tonne Raw material costs/tonne Power and fuel cost /tonne Freight cost/tonne Other expenses/ tonne Operating profit/tonne
Source: Company, Angel Research

2QCY13 1QCY13 4QCY12 4,389 772 966 944 887 799 4,339 751 1012 960 938 766 4,591 610 998 949 846 1138

yoy chg (%) (4.4) 26.6 (3.2) (0.6) 4.9 (29.7)

qoq chg (%) 1.1 2.8 (4.5) (1.7) (5.5) 4.4

August 5, 2013

ACC | 2QCY2013 Result Update

Investment rationale
Favorable capacity location to augur well for ACC
Around 51% of ACC's total capacity is located in states where either cement supply is less than demand or, if it is more, the excess can economically be supplied to nearby supply-deficit states. Hence, all its capacities can rationally achieve higher utilization. Its entire south India plant capacity is in Karnataka and Tamil Nadu, where the demand-supply dynamics are far better than that in Andhra Pradesh.

Higher fuel availability for CPPs leading to lower power and fuel costs
Going ahead, we expect power and fuel cost to be lower for the company, as it currently has 85% self sufficiency in its power requirement with a 361MW captive power plant (CPP), and access to the highest coal linkage in the industry along with few captive coal blocks.

Outlook and valuation

We expect ACC to register a 7.2% yoy growth in its

top-line over CY2012-14. The bottom-line is expected to post a CAGR of 4.5% over the same period. At current levels, the stock is trading at an EV/tonne of US$94 on CY2014E capacity. We recommend a Buy on the stock with a target price of `1,361.

Exhibit 5: EV/tonne band

350,000 300,000 250,000 EV (` mn) 200,000 150,000 100,000 50,000 0 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13

EV/tonne Source: BSE, Company, Angel Research;

$80

$110

$140

$170

August 5, 2013

ACC | 2QCY2013 Result Update

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements Reco Buy Neutral Neutral Buy Neutral Neutral CMP (`) 1,176 171 46 56 152 4,196 1,777 Tgt. Price (`) 1,361 100 Upside (%) 15.7 79.2 FY2015E P/BV (x) 2.5 2.5 0.4 0.4 1.1 2.6 2.4 FY2015E P/E (x) 14.4 15.4 4.2 2.7 6.9 11.2 14.8 FY2013-15E EPS CAGR 4.5 4.4 35.1 11.7 14.4 16.4 11.9 FY2015E RoE (%) 18.2 17.2 9.0 15.4 17.8 25.6 17.3 EV/tonne^ US $ 100 126 65 22 62 128 169

UltraTech Cements Neutral

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

Company Background
In 2005, ACC was acquired by the world's second largest cement company, Holcim. Currently, the Holcim Group in India (ACC and Ambuja Cements taken together) has the largest cement capacity in the country (57mtpa). ACC has a standalone total capacity of 30mtpa, with 16 cement plants spread across the country. Similar to UltraTech, the company is also a pan-India player but with a southern inclination (36% of its total capacity is in south as against 22% in north, 22% in east and northeast, 17% in central and 4% in west).

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ACC | 2QCY2013 Result Update

Profit & loss statement (Standalone)

Y/E Dec. (` cr) Total Operating Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) Adjusted PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY09 8,191 12.5 5,547 956 1,540 368 2,684 2,644 52.6 32.9 342 2,302 60.0 28.7 84 77 3.3 2,294 32.1 2,294 688 30.0 1,607 32.5 20.0 85.5 85.5 32.4 CY10 7,976 (2.6) 6,163 1,168 1,599 462 2,935 1,812 (31.5) 23.5 393 1,420 (38.3) 18.4 57 98 6.7 1,461 (36.3) 1,461 341 23.4 1,120 (30.3) 14.5 59.6 59.6 (30.3) CY11 9,660 21.1 7,761 1,503 2,183 526 3,549 1,899 4.8 20.1 475 1,424 0.3 15.1 97 192 12.6 1,519 3.9 1,519 215 14.2 1,304 16.4 13.8 69.4 69.4 16.4 CY12 11,356 17.6 9,154 1,784 2,382 617 4,370 2,203 16.0 19.8 559 1,644 15.5 14.8 115 265 18.2 1,794 18.1 335 1,459 390 26.8 1,404 7.7 12.6 74.7 74.7 7.7 CY13E 11,581 2.0 9,586 1,876 2,441 647 4,622 1,995 (9.4) 17.6 573 1,422 (13.5) 12.5 84 285 17.6 1,623 (9.5) 1,623 422 26.0 1,201 (14.4) 10.6 63.9 63.9 (14.4) CY14E 13,009 12.3 10,546 2,057 2,681 686 5,122 2,463 23.5 19.3 545 1,918 34.9 15.0 79 288 13.5 2,127 31.1 (0) 2,127 596 28.0 1,532 27.5 12.0 81.5 81.5 27.5

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ACC | 2QCY2013 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Deferred Tax Liab Other Long term Liab Long term prov Total liab Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 2,256 708 554 994 3,114 (858) 6,932 2,753 980 624 1,149 3,746 (993) 7,355 6,826 2,668 4,158 2,156 1,476 8,077 2,995 5,082 1,563 1,703 9,645 3,438 6,208 366 1,625 448 3,343 1,653 388 1,302 3,273 70 8,717 10,219 4,355 5,864 311 2,554 564 2,634 678 489 1,466 3,325 (692) 8,601 10,484 4,928 5,556 1,046 2,555 564 2,776 351 566 1,859 3,282 (505) 9,215 10,749 5,473 5,276 1,781 2,655 564 3,067 416 665 1,986 3,337 (270) 10,006 6,932 7,355 188 5,828 6,016 567 349 188 6,282 6,469 524 362 188 7,004 7,192 511 518 372 123 8,717 188 7,195 7,383 163 517 381 157 8,601 188 7,834 8,022 138 517 381 157 9,215 188 8,650 8,838 113 517 381 157 10,006 CY09 CY10 CY11 CY12 CY13E CY14E

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ACC | 2QCY2013 Result Update

Cash flow statement (Standalone)

Y/E Dec. (` cr) Profit before tax Depreciation Interest expense Change in Working Capital Less: Other income Direct taxes paid Others Cash Flow from Operations (Inc)/ Decin 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 CY09 2,294 342 84 575 77 727 2,492 (1,544) (797) 77 (2,264) 85 505 (420) 84 (276) 984 708 CY10 1,461 393 57 407 98 395 1,825 (657) (227) 98 (786) (43) 667 (710) 57 272 708 980 CY11 1,519 475 97 (391) 192 416 258 1,350 (432) 78 192 (162) (13) 609 (622) (107) 672 980 1,653 CY12 1,459 559 115 (294) 265 206 335 1,703 (552) (929) 265 (1,216) (339) 625 (964) 497 (974) 1,653 678 1,059 (1,000) (1) 285 (716) (25) 561 (586) 84 (327) 678 351 1,697 (1,000) (100) 288 (812) (25) 716 (741) 79 66 351 416 CY13E 1,623 573 84 (514) 285 422 CY14E 2,127 545 79 (170) 288 596

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ACC | 2QCY2013 Result Update

Key ratios
Y/E Dec. 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) 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.) (0.2) (0.5) 27.3 (0.3) (1.0) 25.0 (0.3) (1.2) 14.7 (0.3) (1.1) 14.3 (0.3) (1.2) 16.9 (0.3) (1.0) 24.3 1.3 35 11 193 (57) 1.1 39 9 203 (81) 1.1 38 7 165 (67) 1.1 36 8 132 (47) 1.1 42 10 126 (35) 1.2 44 9 115 (22) 36.3 90.8 29.4 19.9 49.8 17.9 17.7 34.8 19.1 19.0 32.5 19.3 16.0 27.5 15.6 20.0 36.8 18.2 28.1 70.0 1.8 35.1 17.8 76.6 1.6 21.4 14.7 85.8 1.8 22.3 14.5 73.2 1.9 20.4 12.3 74.0 1.8 16.6 14.7 72.0 1.8 19.6 85.5 85.5 103.7 23.0 320.1 59.6 59.6 80.5 30.5 344.2 69.4 69.4 94.7 28.0 382.7 74.7 74.7 86.6 28.7 392.8 63.9 63.9 94.4 25.8 426.8 81.5 81.5 110.5 32.9 470.2 13.8 11.3 3.7 2.0 2.3 7.1 2.7 19.7 14.6 3.4 2.6 2.4 10.3 2.5 17.0 12.4 3.1 2.4 2.1 10.3 2.2 15.7 13.6 3.0 2.4 1.7 8.7 2.2 18.4 12.5 2.8 2.2 1.7 9.4 2.0 14.4 10.6 2.5 2.8 1.4 7.3 1.8 CY09 CY10 CY11 CY12 CY13E CY14E

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ACC | 2QCY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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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

ACC 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 5, 2013

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