3QCY2011 Result Update | Cement

November 1, 2011

ACC
Performance Highlights
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Net profit 3QCY2011 2QCY2011 % chg qoq 3QCY2010 % chg yoy
2,150 319 14.8 168 2,403 580 24.1 337 (10.5) (45.0) (930)bp (50.2) 1,637 221 13.5 100 31.3 44.3 133bp 67.5

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 22,227 0.6 1129/917 54367 10 17,481 5,258 ACC.BO ACC@IN

`1,184 -

Source: Company, Angel Research

For 3QCY2011, ACC reported lower-than-expected performance. The companys net profit grew by 67.5% to `168cr on low base. Adjusted net profit growth was even lower at 34.8% yoy to `123cr adjusting for `61.7cr (`12.7cr in 3QCY2010) of incentives and sales tax write-back pertaining to previous years. Despite the substantial 11.5% yoy improvement in realization, OPM rose only marginally by 133bp yoy to 14.8% due to the surge in raw-material, freight and power and fuel costs. At current levels, we maintain our Neutral view on the stock. OPM at low 14.8%, impacted severely by cost pressures: During 3QCY2011, ACC posted 31.3% yoy growth in its standalone net sales to `2,150cr. The companys dispatches for the quarter stood at 5.69mn tonnes, up 17.8% yoy, on account of higher capacity (on a yoy basis) operational at Wadi and Chanda during the quarter. Realization was also higher by 11.5% yoy at `3,779/tonne. However, on a sequential basis, realization declined by 6.8%. ACCs per tonne raw-material, power and fuel and freight costs rose by 20.2%, 26.8% and 25.3%, respectively, on a yoy basis, thereby negating the improvement in realization and resulting in low OPM of 14.8%. The company, which sources ~60% of its coal requirements through linkages, was hit severely by price hikes carried out by Coal India in March 2011. Outlook and valuation: We expect ACC to register an 18.4% CAGR in its top line over CY2010-12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 9.5% over the mentioned period due to higher operating costs. At current levels, the stock is trading at EV/EBITDA of 7.8x and EV/tonne of US$135, based on CY2012 estimates. We maintain our Neutral view on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 18.8 16.6 14.3

Abs. (%) Sensex ACC

3m 16.9

1yr 16.7

3yr 78.6 140.0

(4.6) (14.1)

Key financials (Standalone)

Y/E Dec. (` cr) Net sales % chg 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)
Source: Company, Angel Research

CY2009
8,027 10.2 1,607 27.3 32.9 85.5 13.8 3.7 29.4 36.3 2.3 149 26 7.1

CY2010
7,717 (3.9) 1,120 (30.3) 23.5 59.6 19.9 3.4 17.9 19.9 2.4 152 27 10.4

CY2011E
9,364 21.3 1,138 1.6 21.2 60.5 19.6 3.1 16.6 19.6 2.1 142 30 9.8

CY2012E
10,814 15.5 1,345 18.2 21.9 71.6 16.5 2.8 17.6 22.1 1.7 135 30 7.8

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com Sourabh Taparia 022-39357800 Ext 6815 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

ACC | 3QCY2011 Result Update

Exhibit 1: 3QCY2011 performance (Standalone)

Y/E Dec. (` cr) Net Sales 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 (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`) Source: Company, Angel Research 3QCY11
2,150 99 2,249 384 17.9 552 25.7 138 6.4 333 15.5 522 24.3 1,930 319 14.8 25 120 57 231 64 27.5 168 7.8 8.9

2QCY11
2,403 30 2,433 315 13.1 569 23.7 120 5.0 348 14.5 501 20.8 1,853 580 24.1 27 116 47 485 148 30.5 337 14.0 17.9

% chg qoq
(10.5) 230.3 (7.6) 21.8 (2.9) 15.5 (4.4) 4.2 4.1 (45.0) (9.30) (6) 3.5 21.6 (52.3) (56.9) (50.2)

3QCY10
1,637 51 1,688 331 20.2 362 22.1 117 7.2 226 13.8 432 26.4 1,467 221 13.5 16 91 30 144 43 30.3 100 6.1 5.3

% chg yoy 9MCY11 9MCY10

31.3 92.4 33.2 15.9 52.8 17.8 47.6 21.0 31.5 44.3 1.33 56.1 31.7 93.8 61.1 46.4 67.5 67.5 6,951 154 7,105 1,111 16.0 1,600 23.0 370 5.3 1,025 14.8 1,520 21.9 5,626 1,479 21.3 78 348 146 1,199 344 28.7 855 12.3 45.5 5,760 127 5,887 902 15.7 1,147 19.9 313 5.4 771 13.4 1,281 22.2 4,415 1,472 25.6 43 281 74 1,223 359 29.3 864 15.0 46.0

% chg yoy
20.7 21.0 20.7 23.2 39.4 18.2 33.0 18.7 27.4 0.5 (4.29) 80.6 24.0 96.7 (1.9) (4.1) (1.1) (1.1)

Exhibit 2: Financial performance

3,000 2,500 2,000 2,102 2,021 1,637 1,958 2,398 2,403 2,150 35 30 25 20 405 359 100 0 1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11
Net Sales Reported (PAT) OPM (RHS)

(` cr)

1,500 1,000 500

256

351

337

168

15 10

Source: Company, Angel Research

November 1, 2011

(%)

ACC | 3QCY2011 Result Update

Exhibit 3: 3QCY2011 Actual vs. Angel estimates

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

Actual
2,150 319 14.8 168

Estimates
2,294 434 18.6 237

Variation (%)
(6.3) (26.5) (376) (29.2)

Performance highlights
Robust top-line growth
ACC reported a robust performance on the top-line front during the quarter on account of strong growth in dispatches and better realization. During the quarter, the companys dispatches rose by 17.8% yoy. Growth in dispatches was on account of capacity additions carried out by the company at Wadi and Chanda. The companys quarterly dispatches were healthy, despite the low growth witnessed in September 2011 due to the Telangana agitation. During the quarter, ACCs realization rose by 11.5% yoy to `3,779/tonne. Growth in realization was on a low base since cement prices touched extremely low levels in 3QCY2010 and recovered subsequently due to the production discipline undertaken by manufacturers.

Higher power and fuel costs result in margin pressure

Despite improved yoy realization, the company faced margin pressure during the quarter on account of higher power and fuel costs, which also rose substantially on account of higher coal prices in the domestic and international markets. Prices of domestic linkage coal increased by 30% in March 2011 due to the price hike carried out by Coal India. ACC, which sources ~60% of its coal requirement through linkages, was severely affected by this price hike. Global coal prices were higher by ~25% yoy during the quarter at US$120/tonne. Hence, ACCs OPM stood at 14.8%, up marginally by 133bp yoy.

Per tonne analysis

For 3QCY2011, ACCs realization/tonne improved by 11.5% yoy to `3,779. Power and fuel cost/tonne increased by 26.8% yoy to `990. On a qoq basis too, power and fuel costs increased by 3.6%. Freight and forwarding costs/tonne were higher by 25.3% yoy on account of higher diesel costs. Operating profit/tonne stood at `387, up 10.1% yoy.

Exhibit 4: Operational performance

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

3QCY11
3,779 990 585 918 387

2QCY11
4,073 956 590 849 933

3QCY10
3,390 781 467 894 352

yoy chg (%)

11.5 26.8 25.3 2.7 10.1

qoq chg (%)

(7.2) 3.6 (0.9) 8.1 (58.5)

November 1, 2011

ACC | 3QCY2011 Result Update

Investment arguments
Growth to be driven by capacity addition
Post the expansion of Wadi plant and the commissioning of the 3mtpa Chanda plant, ACCs total capacity stands at 30mtpa. The companys capacity has increased by ~7mtpa since CY2008-end. The companys capacity additions are expected to drive its growth going ahead, as reflected by the 14.0% yoy increase in its dispatches during 9MCY2011.

Exhibit 5: Installed cement capacity

40 30 30 26 22 20 23 27 30

(mtpa)

10

0 CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E

Source: Company, Angel Research

Pan-India presence to offset the effects of regional demand-supply dynamics

ACC is a pan-India player and, hence, is insulated to a large extent from the risks of demand slowdown and price collapse in any particular region. The companys brands are also popular across the country.

Increased use of captive power to result in lower power and fuel costs
ACCs captive power capacity (CPC) stands at 336MW. The company expects to add another 25MW plant in 2011. Increased use of captive power has improved ACCs cost competitiveness and quality of power. The share of captive power in the companys overall power consumption increased to 74% in CY2010 from 70% in CY2009 and 64% in CY2008. Over the years, ACC has improved its efficiency, owing to which its power consumption/tonne of cement has declined.

November 1, 2011

ACC | 3QCY2011 Result Update

Outlook and valuation

We expect ACC to register an 18.4% CAGR in its top line over CY2010-12, aided by capacity addition. However, the bottom line is expected to grow at a lower CAGR of 9.5% over the mentioned period due to higher operating costs. At current levels, the stock is trading at EV/EBITDA of 7.8x and EV/tonne of US$135, based on CY2012 estimates. We maintain our Neutral view on the stock.

Exhibit 6: Key assumptions

Earlier estimates CY11E Installed capacity (mtpa) Utilisation (%) Power cost/tonne (`) Freight cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates CY11E 30 79 904 667 741 CY12E 30 87 932 700 843 30 88

CY12E

30 80 906 667 812

934 700 866

Exhibit 7: Change in estimates

Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

CY2011E Earlier 9,609 7,656 2,109 472 99 1,695 475 1,221 Revised 9,364 7,599 1,982 472 103 1,603 465 1,138 Var. (%) (2.6) (0.7) (6.0) 0.0 4.1 (5.5) (2.1) (6.8) Earlier 11,008 8,729 2,435 492 70 2,055 667 1,388

CY2012E Revised 10,814 8,621 2,373 492 99 1,991 646 1,345 Var. (%) (1.8) (1.2) (2.5) 0.0 41.5 (3.1) (3.1) (3.1)

Exhibit 8: Angel EPS vs. Bloomberg consensus

Year/(`) CY2011E CY2012E
Source: Bloomberg, Angel Research

Angel forecast 60.5 71.6

Bloomberg consensus 60.2 71.2

Variation (%) 0.5 0.6

November 1, 2011

ACC | 3QCY2011 Result Update

Exhibit 9: One-year forward EV/EBITDA

30,000

EV (` cr)

20,000

10,000

0 Jan-06 Jan-07 Jan-08 4x

Source: Company, Angel Research

Jan-09 6x 8x

Jan-10 10x

Jan-11

Exhibit 10: One-year forward EV/tonne

30,000

20,000

EV ( ` cr)

10,000

0 Jan-06 Jan-07 $70 Jan-08 $90 Jan-09 $110 Jan-10 $130 Jan-11

Source: Company, Angel Research

Exhibit 11: Recommendation summary

Company ACC* Ambuja Cements* India Cement JK Lakshmi Madras Cement UltraTech Cement Reco. Neutral Neutral Neutral Buy Neutral Neutral CMP (`) 1,184 155 79 43 104 1,143 Tgt. price (`) 52 Upside (%) 20.6 FY2013E P/BV (x) 2.8 2.6 0.6 0.4 1.1 2.2 FY2013E P/E (x) 16.5 16.4 8.0 5.4 8.4 14.9 FY2011-13E EPS CAGR (%) 9.6 7.2 111.2 28.4 18.4 22.5 FY2013E RoCE (%) 22.1 21.6 6.6 7.3 10.2 16.7 FY2013E RoE (%) 17.6 16.8 8.3 8.4 13.9 16.1

Source: Company, Angel Research; Note : * December year ending

November 1, 2011

ACC | 3QCY2011 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) PAT (reported) % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY07 7,007 20.7 5,090 903 1,195 353 2,639 1,917 18.1 27.4 305 1,612 17.8 23.0 24 129 6.7 1,717 17.7 (213) 1,930 492 25.5 1,439 14.4 17.5 77 77 16.6 CY08 7,283 3.9 5,550 886 1,599 416 2,648 1,733 (9.6) 23.8 294 1,439 (10.8) 19.8 40 338 18.9 1,737 1.1 (49) 1,785 524 29.3 1,262 (1.0) 16.7 67 67 (12.3) CY09 8,191 12.5 5,547 1,205 1,540 368 2,435 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 85 27.3 CY10 7,976 (2.6) 6,163 1,464 1,599 462 2,639 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 60 60 (30.3) CY11E 9,581 20.1 7,599 1,748 2,155 517 3,179 1,982 9.4 21.2 472 1,510 6.4 16.1 103 195 12.2 1,603 9.7 1,603 465 29.0 1,138 1.6 12.2 61 61 1.6 CY12E 10,994 14.7 8,621 2,007 2,427 569 3,618 2,373 19.7 21.9 492 1,881 24.6 17.4 99 209 10.5 1,991 24.2 1,991 646 32.4 1,345 18.2 12.4 72 72 18.2

November 1, 2011

ACC | 3QCY2011 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 5,464 2,149 3,315 649 845 2,203 743 421 1,039 2,059 145 4,953 5,836 2,366 3,470 1,603 679 2,760 984 651 1,124 2,766 (6) 5,746 6,826 2,668 4,158 2,156 1,476 2,256 708 554 994 3,114 (858) 6,932 8,077 2,995 5,082 1,563 1,703 2,753 1,080 524 1,149 3,746 (993) 7,355 9,640 3,467 6,173 404 1,503 3,856 1,718 587 1,551 3,842 14 8,094 10,044 3,959 6,085 723 1,603 4,652 2,199 648 1,805 4,118 534 8,945 188 3,965 4,153 469 331 4,953 188 4,740 4,928 482 336 5,746 188 5,828 6,016 567 349 6,932 188 6,282 6,469 524 362 7,355 188 7,023 7,211 521 362 8,094 188 7,899 8,087 496 362 8,945 CY07 CY08 CY09 CY10 CY11E CY12E

November 1, 2011

ACC | 3QCY2011 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 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 CY07 1,930 305 24 366 129 514 1,982 (739) (341) 129 (951) 2 (447) 439 24 (908) 123 620 743 CY08 1,785 294 40 309 338 564 1,527 (1,325) 166 338 (822) 2 13 439 40 (464) 241 743 984 CY09 2,294 342 84 575 77 727 2,492 (1,544) (797) 77 (2,264) 85 505 84 (505) (276) 984 708 CY10 1,461 393 57 507 98 395 1,925 (657) (227) 98 (786) (43) 667 57 (767) 372 708 1,080 CY11E 1,603 472 103 (369) 195 465 1,148 (404) 200 195 (8) (3) 397 103 (502) 638 1,080 1,718 CY12E 1,991 492 99 (39) 209 646 1,688 (723) (100) 209 (614) (25) 469 99 (593) 481 1,718 2,199

November 1, 2011

ACC | 3QCY2011 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) 23.0 74.5 2.0 33.7 34.6 54.5 33.6 1.4 35.3 13.1 128.6 (21.5) (0.3) (0.6) 67.3 19.8 70.7 2.0 27.3 26.9 55.4 26.7 1.3 38.2 15.0 158.6 (39.8) (0.2) (0.7) 36.0 28.1 70.0 1.8 35.1 36.3 90.8 29.4 1.3 35.0 11.4 193.4 (57.0) (0.2) (0.5) 27.3 17.8 76.6 1.6 21.6 19.9 50.7 17.9 1.1 38.8 8.7 203.1 (83.3) (0.3) (1.0) 25.0 15.8 71.0 1.9 21.0 19.6 40.4 16.6 1.1 41.5 8.5 182.2 (71.9) (0.3) (1.2) 14.7 17.1 67.6 2.0 23.5 22.1 42.3 17.6 1.1 45.4 9.6 168.5 (55.9) (0.4) (1.2) 19.1 76.6 76.6 92.8 23.4 221.1 67.2 67.2 82.8 23.4 262.3 85.5 85.5 103.7 26.9 320.1 59.6 59.6 80.5 35.5 344.2 60.5 60.5 85.7 21.1 383.6 71.6 71.6 97.7 25.0 430.3 15.5 12.8 5.4 2.0 3.0 10.8 4.2 17.6 14.3 4.5 2.0 2.7 11.4 3.4 13.8 11.4 3.7 2.3 2.3 7.1 2.7 19.9 14.7 3.4 3.0 2.4 10.4 2.6 19.6 13.8 3.1 1.8 2.1 9.8 2.4 16.5 12.1 2.8 2.1 1.7 7.8 2.1 CY07 CY08 CY09 CY10 CY11E CY12E

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 / Interest)

November 1, 2011

10

ACC | 3QCY2011 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

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%)

November 1, 2011

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