Barclays India Cement On The Road To Recovery Initiate On Ultratech and Grasim A

Equity Research
15 December 2014
India Cement
INDUSTRY UPDATE
On the road to recovery; initiate on
Asia ex-Japan Metals & Mining
Ultratech and Grasim at OW NEUTRAL
Unchanged
We are expanding our India Cement coverage and have a positive view on the space as
we believe industry utilisations have bottomed, consolidation levels are improving and For a full list of our ratings, price target and
peak cost pressures are behind. While valuations based on bottom-of-the-cycle earnings changes in this report, please see
table on page 2.
earnings appear expensive, we highlight that average EBITDA/t for our coverage
universe is 42% below its peak and the potential for consensus earnings upgrades
from current levels. We continue to prefer stocks with better market mix (North India),
Chirag Shah
higher volume visibility and strong cost leadership. As such, we retain our OW rating
+91 22 6719 6081
on Shree Cement (FY14-17E EPS CAGR of 37.0%) and initiate coverage on both
chirag.x.shah@barclays.com
Ultratech (32.9%) and Grasim (23.3%) at OW. We continue to see limited upside BSIPL, Mumbai
potential in ACC (upgrade to EW from UW on improving outlook) and Ambuja (UW).
Saket Yadav
Sweet spot ahead: We see the India Cement space as entering a ‘sweet spot’ on the +91 (0)22 6719 6216
back of an expected recovery in demand, slowing capacity additions, improving pricing saket.yadav@barclays.com
power, and peak cost pressure behind. We expect utilisations to improve sharply to BSIPL, Mumbai
74% by FY17E (79% ex-South) and this coupled with improving industry consolidation
should aid a rebound in pricing power. Average EBITDA/t (for our coverage) is 42%
below its peak and we expect price increases from here to outstrip cost pressures,
potentially leading to consensus earnings upgrades (our current FY16E EPS are 4-13%
above Bloomberg consensus).
How to position for expected upturn in demand: We prefer stocks that have the right
ingredients, namely the right market, volume levers and cost leadership. We believe the
North will remain the most attractive cement market in India with rising entry barriers,
greater consolidation and higher utilisation levels. The gestation period for setting new
capacity has increased (to 5-7 years), hence those companies with volume levers
appear better placed. Earnings-based valuations look stretched given our view on the
near bottoming of cycle earnings, although asset valuations still appear reasonable in
the context of previous upcycle multiples (1.2-1.5x replacement cost). In summary, we
see limited upside for earnings re-rating but like stocks with earnings growth trajectory.
Stock views: We see Ultratech and Shree Cement as well placed with strong earnings
growth, the right market exposure, cost leadership and volume levers. As such, we believe
a replacement cost comparison with ACC and Ambuja is not justified given their restricted
growth profile. At our PTs, Shree Cement and Ultratech would trade at US$219/t and
US$196/t, respectively, on FY16E capacity. We also expect Grasim’s holding company
discount on its 60% stake in Ultratech to narrow (currently c47% on our estimates).
Key risks: 1) Volatility in cement and viscose staple fibre prices; 2) increasing
competitive intensity in the North; and 3) aggressive bidding by Ultratech for the
Holcim and Lafarge global assets on sale could create an overhang on the stock.
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment decision.
This research report has been prepared in whole or in part by equity research analysts based outside
the US who are not registered/qualified as research analysts with FINRA.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE
105.
Barclays | India Cement
Summary of our Ratings, Price Targets and Earnings Changes in this Report (all changes are shown in bold)
Company Rating Price Price Target EPS FY1 (E) EPS FY2 (E)
Old New 11-Dec-14 Old New %Chg Old New %Chg Old New %Chg
Asia ex-Japan Metals & Mining Neu Neu

ACC Limited (ACC IN / ACC.NS) UW EW 1428.35 1428.00 1423.00 0 65.70 69.00 5 81.57 82.12 1
Ambuja Cements (ACEM IN / ABUJ.NS) UW UW 223.05 196.00 215.00 10 8.52 8.87 4 9.73 11.72 20
Grasim Industries Ltd. (GRASIM IN / GRAS.NS) N/A OW 3359.85 N/A 4572.00 - N/A 231.80 - N/A 326.67 -
Shree Cement (SRCM IN / SHCM.NS) OW OW 8974.60 9601.00 9975.00 4 297.24 338.46 14 349.60 441.88 26
Ultratech Cement Ltd. (UTCEM IN / ULTC.NS) N/A OW 2484.45 N/A 2943.00 - N/A 89.87 - N/A 141.67 -
Source: Barclays Research. Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.
FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research.
Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended
Industry View: Pos: Positive; Neu: Neutral; Neg: Negative
15 December 2014 2
KEY CHARTS
FIGURE 1 FIGURE 2
Cement demand elasticity to GDP expected to improve Rising entry barriers and non-remunerative returns
sharply as share of construction and infra rebounds restricting supply growth should lead utilizations up
12.0 GDP Growth GDP 3.0 mt

(%)
Surplus / (Deficit) - LHS Utilizations - RHS
Multiplier 15 100%
2.5
10.0
2.0
8.0 5 90%
1.5
6.0 1.0 -5 80%
0.5
4.0 -15 70%
-
2.0
-0.5 -25 60%
- -1.0
-35 50%
FY15E
FY16E
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
FY16E
FY17E
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
GDP Growth Multiplier Surplus = Capacity additions - Incremental Demand
FIGURE 3 FIGURE 4
Further consolidation with the next leg of capacity Peak cost pressures now appear behind for the industry; we
expansions (FY14-17E) could be dominated by large cos expect profitability to improve sharply
mt Cost ‐ t Pace of cost increase

FY07-FY14 - Cost-t
410 to slowdown
4,000 increased sharply at a
CAGR of c9%
390
3,500
370
FY01-07
350 3,000 Stable costs;
CAGR of c5%
330 2,500
310
2,000
290
1,500
270
250 1,000
FY15E
FY16E
FY17E
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY10 North East West South FY14 North East West South FY16E
All-India capacity Large, established firms New entrants
FIGURE 5 FIGURE 6
Margins have shown strong correlation to utilizations Average EBITDA/t for our coverage is currently 42% below
historically; visibility of pricing power returning peak
100% Industry 30% Rs/t
EBITDA 1,300
Utilizations Margin
95% 25%
90%
20%
1,000
85%
15%
80%
10% 700
75%
70% 5%
65% 0% 400
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Industry Utilizations EBITDA Margin EBITDA/t

Source for all charts: CMA (Cement Manufacturers Association), CMIE (Centre for Monitoring Indian Economy), Company data, Barclays Research estimates
15 December 2014 3
INVESTMENT SUMMARY: INDIA’S CEMENT SECTOR ON THE ROAD TO RECOVERY

We expect four key themes to play out in the India Cement space over the next two-
three years: 1) cement demand/GDP multiplier to improve dramatically over FY17E; 2)
utilization levels to bottom in FY15E as rising entry barriers (limestone, land availability,
etc.) and low return ratios (overcapacity, rising capital costs, etc.) considerably restrict
supply additions; 3) consolidation levels expected to improve sharply; and 4) pricing
power to return and margins to expand. We expect 24-32% EBITDA CAGRs (FY14-17E)
for our coverage universe, although the earnings acceleration could be back-ended. We
retain our OW rating on Shree Cement and initiate coverage on both Ultratech and
Grasim with OW ratings. We continue to see limited upside potential in ACC (upgrade to
EW from UW on improving demand outlook) and Ambuja (UW).
FIGURE 7
India Cement – entering a ‘sweet spot’ by FY17E
…with capacity
Sharp uptick in Further
additions slowing
demand… consolidation…
down.
Utilization levels to go Top 5 players to

8%+ CAGR in up to 79% in control 60%+
FY16-17E
FY17E (ex-South) of capacity, ex-South
Also, peak cost Expect profitability

…to drive increase in
pressures are now (EBITDA/t) to return
pricing power
behind to peak levels
Expect cost rise to Avg. EBITDA/t is

Margins have shown
subside, with
strong co-relation
with utilizations.
declining global coal currently 42%
and crude prices. below peak.
How to position for expected upturn in demand?
Earnings based valuations look stretched and see limited

upside for earnings re-rating but prefer stocks with: OW on…
9 Right market exposure
9 Volume levers Ultratech
9 Cost leadership Shree Cement
Factors which will drive earnings growth.
Source: Barclays Research
15 December 2014 4
Theme #1: Cement demand to revive; expect GDP multiplier

to expand as upcycle starts
The cement demand-to-GDP growth multiplier has shown considerable volatility in the last
20 years, with significant expansion (2.4x of GDP) and contraction (-50% of GDP) during
the largest upcycle and downcycle. We believe this volatility reflects the elasticity that
cement demand has to the cement-intensive construction and infrastructural pie in GDP. In
the last several years, the GDP delta either side has almost invariably come from these
segments. Also, given cement is a late-cycle play, India’s consumption of cement demand
typically lags GDP improvement by 18-24 months. We continue to expect muted cement
demand growth in FY15 but see multiple drivers for a strong rebound such as improvement
in fund utilization for government sponsored social housing schemes, strong rural wage
growth, ordering for large infrastructure projects such as Dedicated Freight Corridors (DFC),
and stabilisation of demand in South India. Demand recovery could accelerate further if new
infrastructure projects and initiatives announced by the new government (concretisation of
roads, housing for all, etc.) come on stream.
FIGURE 8
India cement demand elasticity to GDP expected to improve sharply as share of construction and infra in GDP rebounds
GDP Growth (%) GDP Multiplier

Peak level multipliers :
12.0 FY98‐00 ‐ infra uptick; FY02‐03 ‐ new As new infra projects enter the execution 3.0
state creations and pre‐elections stage, we expect sharp improvement in
cement demand elasticity to GDP 2.5
10.0
2.0
8.0
1.5
6.0 1.0
0.5
4.0
2.0
-0.5
- -1.0
FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
GDP Growth Multiplier
Source: CMA, Ministry of Commerce, Reserve Bank of India (RBI), Barclays Research estimates
FIGURE 9
Cement-intensive construction and infrastructural segments have followed GDP delta on either side, whereas contribution of
the services segment has remained steady
12 % % 25
10 20
8
15
6
10
4
5
2
0
0
-5
-2
-4 -10
-6 GDP (growth) Construction (growth) - rhs Services (growth) - rhs -15
Source: RBI, Barclays Research
15 December 2014 5
Theme #2: Utilizations to rebound sharply as supply growth

slows
India’s cement industry added capacity at a brisk pace (13% CAGR) between FY08 and
FY12. Meanwhile, cement demand growth slowed considerably over the same period. We
expect the pace of capacity additions to slow considerably as rising entry barriers
(limestone, land availability, etc.), non-remunerative returns (RoCE of a new greenfield
project at c5%), and leveraged balance sheets of smaller entrants discourage more capacity
expansions. On the other hand, a sharp increase in average set up time for new greenfield
capacity is encouraging more capacity buyouts.
More importantly, increasing lead distances (average distance between the manufacturing
facility and the end market) and logistic costs are restricting inter-regional movement of
cement, which in turn is rendering a number of cement grinding units unviable. We argue
that adjusting for these unviable units, industry utilizations would have been significantly
higher (FY10-14) than the reported numbers.
FIGURE 10
India Cement – RoCE of new cement capacity at current profitability levels remains low (FY15E)
Ramp-up period (8-12 months) At 70% utilization levels At optimum utilization
EBITDA/t of new cement plant 10 15 25

Less: Depreciation@5% 8 8 8
EBIT/t 2 7 17
Capital employed ($/t) 152 152 152
RoCE (%) 1.58% 4.87% 11.45%
Source: Barclays Research estimates
FIGURE 11
India Cement – adjusted utilization levels for the industry
FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

All India Capacity (mt) 274 301 320 348 359 377 396 408
Production (mt) 200 210 224 235 242 258 278 300
Utilization 73% 70% 70% 68% 68% 68% 70% 74%
Utilization – excluding South 80% 76% 79% 75% 75% 74% 75% 79%
Utilization – adjusting for unviable grinding units 84% 80% 80% 77% 78% 79% 82% 86%
Source: CMA, Company data, Barclays Research estimates
Theme #3: Expect consolidation to accelerate

Unlike in the past, we expect the next leg of expansions over FY14-17E to be dominated by
large companies in each region. Large players have traditionally preferred profitability over
market share and we estimate the earnings sensitivity to a 10% change in sales realisations is
significantly (3-5x) higher than a 10% change in sales volumes. Ex-South (which is a
fragmented market), the Top 5 players now control c60% of the national market as of end-
FY14. We believe that current valuations support acquisitions over setting up greenfield
capacities, hence we expect consolidation to accelerate further ex-South. Apart from physical
infrastructure, an acquisition could also offer an established dealer network, lower ad spend
and marketing expenditure, as well as established brand positioning. In addition, the working
capital requirement for a new cement brand is much higher than for an established brand.
Consolidation also brings benefits such as better cost structure, driven by economies of scale
and better bargaining power over suppliers of raw materials, energy, and transportation of
capital. This helps to achieve economies of scale faster and hence improve profitability.
15 December 2014 6
FIGURE 12
India Cement – the Top Five manufacturers have more than c60% of capacity market share (ex-South) (end-FY14)
North East West South
Market Market Market Market
Company Capacity Company Capacity Company Capacity Company Capacity
Share Share Share Share
UltraTech 13.8 14% Lafarge 5.6 17% UltraTech 22.4 23% Chettinad 14.2 11%
Shree Cement 13.5 14% Orissa Cement 5.4 16% Jaiprakash 16.0 16% UltraTech 14.1 11%
Ambuja 12.7 13% ACC 4.4 13% Ambuja 13.7 14% Ramco 13.7 10%
Jaiprakash 10.7 11% UltraTech 3.8 11% Century 7.8 8% India Cements 13.0 10%
ACC 8.2 9% Ambuja 2.8 8% ACC 7.8 8% ACC 10.4 8%
Total 95.4 62% Total 33.5 65% Total 97.7 69% Total 132.1 49%
Source: CMA, CMIE, company data, Indian Bureau of Mines, Barclays Research
FIGURE 13
India Cement – we expect the bulk of capacity additions to come from larger players consolidating positions
mt
410
390
370
350
330
310
290
270
250
Source: Company data, Barclays Research estimates
FIGURE 14
India Cement – to continue witnessing consolidation; snapshot of key transactions in last 14 months
Date Target Acquirer Region Details EV/t ($/t)
JP Panipat
Aug-14 Shree Cement North Grinding Unit at Panipat. N/A
Grinding Unit
5.5 mt plant in Gulbarga, Karnataka. First phase of this facility,
Vicat Sagar
Jul-14 Parficim South capable of producing 2.75mt, was completed in Dec-2012 with N/A
(47% stake)
commencement of production in Jan-2013.
Bokaro Jaypee 2.1 mt capacity. Unit has a 30-year long term clinker supply
Dalmia
Mar-14 Cement (74% East arrangement with Jaiprakash Associates and 30-year slag supply 122
Cement
stake) arrangement with SAIL.
Anjani
Chettinad Chettinad acquired a 17.08% stake through an open offer. Company
Mar-14 Portland South N/A
Cement targets to increase its presence in Andhra Pradesh.
(66.08% stake)
Heidelberg
Oct-13 India (Raigad JSW Steel West Cement grinding facility in Raigad, Maharashtra. Capacity of 0.6mt. N/A
Unit)
4.8mn tonne cement capacity in Kutch, Gujarat; the deal also
Jaypee (Gujarat
Sep-13 Ultratech West includes a 57.5MW captive thermal power plant, a jetty and lime 126
Cement Unit)
stone reserves with a mine life of 90 years.
Source: Merger Market, Barclays Research
15 December 2014 7
Theme #4: Margins to improve as pricing power returns

India Cement has seen one of the sharpest increases in costs (9% CAGR) from FY07-14.
Freight costs rose at a 12% CAGR over the period, mainly attributable to: 1) sharp hikes in
diesel prices (up 42% over the period); 2) the reduced contribution of railways (a more
cost-efficient mode of transport compared to road) and lack of wagon availability; and 3)
increasing lead distance. On the other hand, coal costs increased sharply as the mix shifted
more towards imported coal (vs. subsidised domestic coal earlier). Soft global commodity
prices (diesel, coal, etc.) should restrict incremental cost pressures, in our view (see Figure
70: Impact of falling crude prices). Fuel cost optimization continues to be a major theme in
the industry. Companies are making significant time and capital investments to enable
cement plants to be more adaptable to using cheaper fuels such as pet-coke and other
alternative fuels.
FIGURE 15
India Cement – input costs have increased steadily in the last five years, mainly on account of increasing logistics costs; we
expect cost pressures to subside
FY07‐FY14 ‐ Cost‐t increased sharply at a CAGR of c9% Pace of cost increase to slowdown
Cost - t Multiple increases in domestic diesel prices, railway freight hikes, low availability
4,000 of linkage coal, and a increase in seaborne coal prices drove up costs
FY01‐07
3,000 Stable costs; CAGR of c5%
2,000
1,000
-
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Valuations and recommendations

Stock prices of most India Cement companies have witnessed a strong rally YTD,
outperforming the BSE index by c32% (as of 11 December 2014) on expectations of
demand recovery. Although earnings-based valuations look expensive compared to the
historical trading multiples, we highlight that consensus estimates (Bloomberg) have
significantly lagged actual earnings during inflexion periods. Industry margins have shown a
strong correlation to utilization levels in the past 25 years (Figure 17). We expect price
increases from here to outstrip cost pressures, leading to potential consensus earnings
upgrades. Our valuations build in the impact of expected demand recovery and also
increasing industry utilizations, which should translate into a strong improvement in
profitability across our coverage universe. Earnings for our coverage universe are currently
4-13% above Bloomberg consensus (FY16E). Asset based valuations at 1.2-1.5x
replacement cost still appear reasonable in the context of previous upcycle multiples
(stocks have traded at ~2x replacement cost). On a P/B basis, current valuations are c50%
below the average seen during the last peak (FY04-07).
15 December 2014 8
FIGURE 16 FIGURE 17
Margins have shown strong correlation to utilizations Average EBITDA/t for our coverage is currently 42% below
EBITDA 1,300
Utilizations Margin
95% 25%
90%
20%
1,000
85%
15%
80%
10% 700
75%
70% 5%
65% 0% 400
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Source: CMA, CMIE, Company data, Barclays Research estimates Source: CMA, CMIE, Company data, Barclays Research estimates
FIGURE 18 FIGURE 19
Average EV/t for large caps* against replacement cost Asset based valuations for large caps* still below previous
up cycle multiples
US$/t
300 3.00
2007-2008
250 2.50 Avg. multiplier
was 2.1x
200 2.00
150 1.50
100 1.00
50 0.50
- -
Replacement Cost Avg. EV/t Multiplier (EV/t as a multiplier of replacement cost)

Note: *Cement companies with greater than 20mt considered large caps. Note: *Cement companies with greater than 20mt considered large caps.
Source: Datastream, Barclays Research Source: Datastream, Barclays Research
FIGURE 20
Large cap* India cement firms – current valuations are still below last peaks (average multiples)
EV/EBITDA P/B
18.0 8.0
16.0 7.0
14.0 6.0
12.0 5.0
10.0
4.0
8.0
3.0
6.0
4.0 2.0
2.0 1.0
- -
EV/EBITDA Average P/B Average

Note: *Cement companies with greater than 20mt considered large caps. Source: Datastream, Barclays Research
15 December 2014 9
FIGURE 21
Current valuation multiples are below the peak multiples witnessed in previous upcycles
EV/EBITDA (forward) P/E (forward) P/B
Company Current Peak Multiple Current Peak Multiple Current Peak Multiple
Ultratech 10.2x 14.5x 17.5x 37.3x 3.0x 8.7x
Shree Cement 10.5x 14.6x 20.3x 40.9x 4.1x 7.5x
ACC 10.0x 13.1x 17.4x 31.8x 3.0x 7.2x
Ambuja 10.7x 12.8x 19.0x 27.1x 3.2x 7.1x
Note: Current year forward valuations are based on current market price (11 December 2014) and FY16E (Mar-2016 for Shree and Ultratech, Dec-2015 for ACC and
Ambuja) Barclays Research earnings estimates. Source: Datastream, Barclays Research estimates
Earnings upgrades likely to come with a lag

Valuation multiples for cement players at current earnings expectations (FY16E/FY17E) look
stretched vs historical valuations, in our view. However, we believe the earnings revisions cycle
would start only with a lag once we start to witness an on-ground pickup in demand.
Although we expect muted cement demand growth in FY15E, we see multiple drivers for a
strong rebound from FY16E onwards. Our valuations build in the impact of an expected
demand recovery and increasing industry utilizations, which should translate into a strong
improvement in profitability across our coverage universe. Our FY17E EPS are c4-13% ahead
of Bloomberg consensus (FY16E). Although we are yet to see any major upgrades in earnings
forecasts, we believe the earnings downgrade cycle has bottomed out. We highlight that
consensus estimates significantly lag actual earnings during inflexion periods and even
diminutive corrections in realisations/volumes can significantly alter profitability forecasts.
FIGURE 22
Sensitivity analysis – potential impact of change in realisations on profitability of ACC,
Ambuja, Shree Cement, Ultratech and Grasim
Impact on EPS (FY16E) ACC Ambuja Shree Ultratech Grasim*
1% change in realisations 5.5% 5.0% 3.9% 5.0% 0.9%
1% change in volumes 1.7% 0.9% 1.5% 2.7% 0.2%
Note: *For Grasim the impact shown is for a 1% change in VSF volumes and realisations.
FIGURE 23
FY16E adjusted EPS consensus estimates
Rs/share Rs/share
Rs/share
165 105 15
Ultratech ACC Ambuja
100 14
155
95
145 13
90
135 85 12
80 11
125
75
115 10
70
105 65 9
Jan-13
Mar-13
Jan-14
Mar-14
May-13
Jul-13
May-14
Jul-14
Sep-13
Nov-13
Sep-14
Jan-14
Mar-14
Mar-13
Jan-14
Mar-14
Jul-13
Sep-13
Nov-13
May-14
Jul-14
Sep-14
Nov-14
May-13
Jul-13
Sep-13
Nov-13
May-14
Jul-14
Sep-14
Nov-14
Source: Bloomberg, Barclays Research
We have a preference for India Cement stocks with a better market mix (i.e. relatively higher
exposure to North India), higher volume visibility, and strong cost leadership. We retain our
OW rating on Shree Cement (FY14-17E EPS CAGR of 37.0%) and initiate coverage on
Ultratech (32.9%) and Grasim (23.3%) with OW ratings. We continue to see limited
potential in ACC and Ambuja. While we upgrade ACC to EW (from UW) on the back of an
improving demand scenario, we continue to see limited upside potential and we also retain
our UW rating on Ambuja due to its expensive valuations.
15 December 2014 10
FIGURE 24
India Cement – regional valuation comparison
Price Price Potential (%) P/E (x) EV/EBITDA (x) P/BV (x) RoE EPS CAGR EV/t ($/t)
Upside/Do
Company Ticker Rating Currency Price Target FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY14-17E FY15E FY16E FY17E
wnside
ACC ACC.NS EW INR 1,428.35 1,423.00 -0.4 20.7 17.4 13.8 12.3 10.0 8.2 3.2 3.0 2.8 16.1 18.0 18.0 29.1 135 119 119
Ambuja ABUJ.NS UW INR 223.05 215.00 -3.6 25.1 19.0 15.8 13.4 10.7 8.9 3.4 3.2 2.9 13.6 16.7 16.7 15.9 171 146 146
Shree Cement SHCM.NS OW INR 8,974.60 9,975.00 11.1 26.5 20.3 15.4 13.3 10.5 8.0 5.2 4.1 3.2 19.8 20.3 20.9 37.0 241 215 215
Ultratech ULTC.NS OW INR 2,484.45 2,943.00 18.5 27.6 17.5 13.1 15.7 10.2 7.6 3.5 3.0 2.5 12.7 17.1 19.0 32.9 190 172 172
Anhui Conch 0914.HK OW HKD 27.10 32.85 21.2 9.8 8.9 8.8 6.2 5.3 4.8 1.8 1.5 1.3 21.0 19.7 19.7 11.4 94 87 79
China National Building 3323.HK UW HKD 7.40 6.10 -17.5 5.5 5.1 4.7 7.2 7.1 6.8 0.8 0.7 0.6 16.5 15.5 15.5 5.4 60 58 59
China Resources Cement 1313.HK EW HKD 5.09 5.91 16.1 8.1 7.8 7.5 6.3 5.6 4.9 1.2 1.1 0.9 16.5 15.1 15.1 9.8 84 73 60
China Shanshui Cement 0691.HK EW HKD 3.25 2.80 -13.9 9.8 9.4 9.0 8.4 7.9 7.5 0.7 0.7 0.7 8.1 8.0 8.0 - 7.2 36 33 32
Notes: Prices as of the market close on 11 December 2014. For ACC and Ambuja, FY14 and FY15 represent years ending December 2013 and December 2014, respectively. For Shree Cement, FY14 and FY15 represent years
ending June 2014 and June 2015, respectively.
Stock ratings: OW: Overweight; EW: Equal Weight; UW: Underweight. Industry views: Pos: Positive; Neu: Neutral; Neg: Negative. Asia ex-Japan Metals & Mining industry view = Neutral. For full disclosures on each covered
company, including details of our company-specific valuation methodology and risks, please refer to http://publicresearch.barcap.com.
15 December 2014 11
Companies
Grasim: ‘Cement’ lining; initiate at OW
We initiate coverage of Grasim, the world’s third largest viscose staple fibre producer, with an
GRASIM IN / GRAS.NS Overweight rating and a 12-month SoTP-based price target of Rs4,572. While we believe the
Stock Rating VSF business will continue to face headwinds, we expect Grasim’s holding company discount
OVERWEIGHT on its 60.3% stake in Ultratech to narrow, which should support the stock. The stock-to-use
Industry View ratio for cotton is at an all-time high of c90% (end-FY14). We believe this, coupled with policy
NEUTRAL changes in China, could keep margins in check for the next one to two years. However, with
Price Target large expansion projects nearing completion, we expect strong volume growth and free cash
INR 4572.00 flow for Grasim as the standalone business enters the cash monetisation phase. Also, with
Price (11-Dec-2014) new capacity coming on stream, we expect the product mix to improve, which should provide
INR 3359.85 support to realisations in a weak pricing environment. However, we expect the standalone
Potential Upside/Downside entity’s contribution (c13% of our SoTP-based PT) to remain small, in contrast to Ultratech
+36% (c81% of Grasim’s overall operating profit in FY14). We expect Ultratech’s strong earnings
growth outlook to drive consolidated profitability (Figure 138).
Valuation: We value Grasim at Rs4,572 using a SoTP valuation and conservatively apply a
holding company discount of 25% for its 60.3% stake in Ultratech. We value the standalone
businesses (VSF and Chemicals) at a target EV/EBITDA multiple of 5x (we conservatively apply a
30% discount to global peers), applied to our FY16E EBITDA. We value Grasim’s investments in
other listed companies at a 25% discount to the current market price, consistent with our
holding company approach. We expect Grasim’s holding company discount on its stake in
Ultratech to narrow (currently c47% based on FY16E EV/EBITDA) as the VSF outlook improves.
Key risks: Key downside risks to our investment thesis and price target for Grasim include: 1)
any further sharp correction in VSF prices; 2) exposure to currency fluctuations, as Grasim has
subsidiaries and JVs around the world; 3) delays in commissioning of new capacity at Vilayat;
and 4) risks pertaining to Ultratech given Grasim’s 60% stake in the company.
Ultratech Cement: Strong growth trajectory; initiate at OW

We initiate coverage of Ultratech Cement with an Overweight rating and a 12-month
UTCEM IN / ULTC.NS EV/EBITDA-based price target of Rs2,943. Ultratech is India’s largest cement manufacturer
Stock Rating by capacity, and we expect it to be a key beneficiary of the expected uptick in demand.
OVERWEIGHT Ultratech has a strong growth pipeline with c12mt of new capacity scheduled to come on
Industry View stream between FY14-16E. We believe Ultratech’s pan-India presence and substantial scale
NEUTRAL in all four regions could be a key differentiator. We view Ultratech as the most profitable
Price Target cement manufacturer in our India coverage universe, owing to its better product and trade
INR 2943.00 mix as well as its cost-saving initiatives. While any large international, inorganic pursuits
Price (11-Dec-2014) could be an overhang on the stock, we believe Ultratech offers attractive exposure to the
INR 2484.45 expected recovery in India’s cement sector due to its strong earnings growth trajectory – we
Potential Upside/Downside forecast an EBITDA CAGR of 30% between FY14-17E.
+18% Valuation: Our price target for Ultratech of Rs2,943 is based on a target EV/EBITDA multiple
of 12x applied to our FY16E EBITDA of Rs69,578mn, and implies an EV/t of US$196/t. We
use the same target multiple as for Shree Cement, which is a 20% premium to the multiple
we use for ACC and Ambuja. We believe Ultratech deserves to trade at a premium to ACC
and Ambuja given its strong growth outlook, pan-India scale, better product and sales mix,
cost leadership and strong brand recognition.
Key risks: Key downside risks to our investment thesis and price target for Ultratech include:
1) lower-than-expected utilization and cement realisations; 2) any potential delays in the
commissioning of new capacity; and 3) any large inorganic expansion, which could put
stress on the balance sheet.
15 December 2014 12
ACC: Upgrade to EW (from UW) on improving outlook

We upgrade our rating on ACC to EW from UW on the following factors: 1) we expect
ACC IN / ACC.NS multiple cost-saving levers and synergy benefits to reduce the profitability gap with peers;
Stock Rating 2) the current utilization rate of 80% should provide significant scope for ACC to benefit
EQUAL WEIGHT from an expected stabilisation in demand in South India; and 3) we believe ACC’s
Industry View profitability has relatively high operating leverage to changes in cement prices. However, we
NEUTRAL expect longer-term growth to remain constrained by leverage at Holcim. Furthermore, the
Price Target announced global merger between Holcim and Lafarge creates additional uncertainty as
INR 1423.00 India’s Competition Commission may require some assets to be sold by ACC-Ambuja. We
Price (11-Dec-2014) view the current valuation, at 8.2x CY16E EV/EBITDA, as fair, and prefer Ultratech and Shree
INR 1428.35 Cement (both OW) given their better earnings and volume growth profile. We make minor
Potential Upside/Downside revisions to our estimates and price target for ACC (now Rs1,423).
0%
Revising estimates; raise PT: We make minor revisions to our estimates to reflect lower
margins and revise down our price target for ACC to Rs1,423 (from Rs1,428), while keeping
our valuation methodology unchanged (EV/EBITDA multiple of 10x applied to CY15E). Our
PT implies an EV/t of US$118/t. We believe Ambuja’s stated plans to acquire up to a 10%
additional stake in ACC over the next two years could provide support for the share price.
Key risks: Risks to our investment thesis and price target for ACC include, to the upside: 1) a
higher-than-expected rebound in cement demand, leading to higher cement dispatches and
prices; and 2) higher supply of linkage coal. To the downside: 1) further delays in synergy
benefits; and 2) a slower-than-expected recovery in cement demand and pricing.
Ambuja Cements: Expect restructuring benefits, but valuation looks

expensive; maintain UW
We reiterate our Underweight rating on Ambuja Cements but raise our 12-month SoTP-
ACEM IN / ABUJ.NS based price target to Rs215 from Rs196, to reflect higher demand growth visibility in the
Stock Rating medium term. Although we expect restructuring and synergy benefits from the announced
UNDERWEIGHT merger with ACC to flow through in CY15, we believe the outlook for the company’s volume
Industry View growth remains muted in comparison to industry peers under our coverage. Additionally,
NEUTRAL Ambuja’s current valuation, at 10.7x CY15E EV/EBITDA, is near a historical high and already
Price Target factors in the expected profitability rebound in CY15E, in our view. We expect the proposed
INR 215.00 restructuring to be completed by 2Q CY15 and to receive the required shareholder approval.
Price (11-Dec-2014) Our new price target for Ambuja is based on a 10x CY15E EV/EBITDA multiple (unchanged)
INR 223.05 for Ambuja’s standalone business plus the value of the proposed 50.01% stake in ACC at
Potential Upside/Downside cRs134bn.
-4%
Revising estimates, raise PT to Rs215: Factoring in higher demand growth visibility in the
medium term, we raise our CY15E and CY16E volume and profitability estimates, now
expecting volume growth of 9.6% in CY15E and 8.7% in CY16E. We also expect profitability
to improve on improving utilizations and higher realisations. Thus, we raise our CY15E
EBITDA/t by 8.4% and, as a result, we raise our 12-month price target to Rs215 (from
Rs196), implying an EV/tonne of US$134/t (methodology unchanged).
Key risks: Upside risks to our investment case and price target for Ambuja include: any
higher-than-expected rebound in cement demand, leading to higher cement dispatches and
prices. Moreover, we do not see a material risk to the share price if the proposed
restructuring is not completed.
15 December 2014 13
Shree Cement: Room for further upside; maintain OW

We reiterate our Overweight rating on Shree Cement and expect the company to report a
SRCM IN / SHCM.NS strong EBITDA CAGR of 32% over FY14-17E. We believe Shree still offers attractive
Stock Rating exposure to the north India cement market. The commissioning of new capacity (a 2mtpa
OVERWEIGHT clinker line) in Rajasthan, coupled with the recently concluded acquisition of Jaiprakash
Industry View Associates’ (JPA) assets, should help Shree further consolidate its market share in the north,
NEUTRAL in our view, and also address the clinker-cement capacity mismatch. We expect the
Price Target company to sustain its cost leadership and remain free cash flow positive even as it pursues
INR 9975.00 an aggressive expansion strategy. We revise our earnings estimates up to factor in the
Price (11-Dec-2014) improving demand and pricing outlook, and consequently raise our price target to Rs9,975
INR 8974.60 from Rs9,601.
Potential Upside/Downside
Valuation: To reflect our higher earnings estimates, we raise our price target for Shree to
+11%
Rs9,975 from Rs9,601. We value the company at a target EV/EBITDA multiple of 12x
(unchanged); at a 20% premium to ACC and Ambuja applied to our revised FY16E EBITDA
of Rs26.9bn. We believe Shree deserves to trade at a premium as it still offers attractive
exposure to the north India market, which we expect to remain most attractive in terms of
improving utilization, consolidation and higher entry barriers. Our price target implies an
EV/tonne of US$219/t.
Key risks: Key downside risks to our investment thesis and price target for Shree Cement
include: 1) lower-than-expected utilization and cement realisations; 2) lower supply of pet-
coke; 3) falling merchant power prices and delays in commissioning of new capacity; 4)
increasing competitive intensity; and 5) a fall in demand in North India.
15 December 2014 14
CONTENTS
KEY CHARTS ....................................................................................................... 3
INVESTMENT SUMMARY: INDIA’S CEMENT SECTOR ON THE ROAD

TO RECOVERY .................................................................................................... 4
THEME #1 – DEMAND BOTTOMING OUT; EXPECT A FULL

RECOVERY FROM 2H FY16 ...........................................................................16
THEME #2 – UTILIZATION TO IMPROVE AS SUPPLY GROWTH

SLOWS ...............................................................................................................26
THEME #3 – EXPECT FURTHER CONSOLIDATION & GREATER

PRICING POWER ..............................................................................................31
THEME #4 – PEAK COST PRESSURES APPEAR TO BE BEHIND ...........34
VALUATIONS REFLECTIVE OF GROWTH EXPECTATIONS ...................38
KEY INDUSTRY RISKS .....................................................................................46
REGIONAL ANALYSIS .....................................................................................47
COMPANIES ......................................................................................................58
GRASIM (GRASIM IN; OW; PT INR4,572; +36%): ‘CEMENT’ LINING ..59
ULTRATECH CEMENT LIMITED (UTCEM IN; OW; PT INR2,943;

+18%): STRONG GROWTH TRAJECTORY .................................................69
ACC LIMITED (ACC IN; EW; PT INR1,423; 0%): UPGRADE TO EW ON

IMPROVING OUTLOOK ..................................................................................80
AMBUJA CEMENTS (ACEM IN; UW; PT INR215; -4%): EXPECT

RESTRUCTURING BENFITS, BUT VALUATION LOOKS EXPENSIVE.....87
SHREE CEMENT (SRCM IN; OW; PT INR 9,975; +11%): ROOM FOR
FURTHER UPSIDE; MAINTAIN OW ..............................................................96
15 December 2014 15
THEME #1 – DEMAND BOTTOMING OUT; EXPECT A FULL RECOVERY FROM

2H FY16
Cement demand growth is recovering from four consecutive years of slow growth
between FY11 and FY14 (GDP multiplier of 0.8x). Our latest industry channel checks
suggest that rural wage growth seen in the last few years is keeping rural housing
demand elevated (reflected in the non-trade number of cement companies). While both
Expect a strong rebound in urban housing and infrastructure demand is yet to see signs of a pick-up, trade segment
cement demand with an inquires suggest that cement demand could rebound with a lag. We expect a full
estimated 8% CAGR between recovery to be back-ended towards 2H FY16, once new infrastructure projects and
FY15-17E initiatives announced by the new government come on stream. We also expect cement
demand elasticity to GDP to rebound sharply as the share of construction and
infrastructure in GDP rebounds.
Recovery in cement demand could drive multiple to peak levels

In our view, the considerable volatility seen in Indian cement demand elasticity reflects the
fact that GDP delta either side has almost invariably come from the industrial and
Average GDP multiplier for infrastructure sectors (i.e. cement intensive sectors). Also, given cement is a late-cycle play,
cement demand growth is India’s consumption of cement demand typically lags GDP improvement by 18-24 months.
higher during upcycles Thus, we believe that during upcycles the average GDP multiplier for cement demand
growth tends to be higher (Figure 8). With an improving outlook for cement demand and
with infrastructure spending expected to increase, we expect the GDP multiplier to improve
significantly from FY17E onwards.
FIGURE 25
India Cement – demand growth has tended to track GDP growth, but the relationship has diverged since FY10; we expect an
uptick in GDP and a recovery in cement demand to drive multiples back to peak levels
y/y (%) Average GDP multiplier of 1.1x

Average GDP multiplier 0.8x Average GDP
14.0
multiplier 1.2x
12.0
10.0
8.0
6.0
4.0
2.0
-
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E
(2.0)
(4.0)
GDP growth (%) Cement demand growth (%)
Source: CMA, Ministry of Commerce, RBI, Barclays Research estimates
15 December 2014 16
FIGURE 26
Key cement demand drivers in India
Segment Key demand drivers
• Ordering from key infrastructure projects like DFC and DMIC would drive cement demand.
• Cement consumption for the Western Corridor alone could be c37mt over FY15E-19 (with 19mt for the North alone),
as per our estimates.
• Additional demand to come from greenfield cities and industrial corridors that are planned alongside the DFC.
Infrastructure
• Concretization of roads – the Ministry of Roads has stated plans to increase usage of concrete over bitumen.
• We expect significant investment in road infrastructure to meet the burgeoning freight demand. We estimate National
Highways Authority of India (NHAI) has still to award cRs1,500bn of projects (19,184km) under the National Highway
Development Project (NHDP) program.
• Biggest end-user of cement in India (c65% of demand in FY14), with the rural segment driving a chunk of this
demand.
• We expect the rural market to continue to be the major consumer with an uptick in cement consumption driven by
Housing
rising rural incomes and state-sponsored schemes like Indira Awas Yojana (IAY) and Rajiv Awas Yojana (RAY).
• Interest exemption on loans for self occupied property increased from Rs150,000 per year to Rs200,000 per year in
the current year’s (2014-15) union budget. We see this as a key positive for urban housing demand.
• Uptick in cement demand in the now divided states of Telangana and Seemandhra to be a key driver for the South as:
Stabilisation of − Revival of infrastructure projects which were stalled or postponed due to the uncertain political environment.
demand in South India − New demand on account of the announced infrastructure package for the newly formulated states, coupled with
spending on necessary government infrastructure.
• In the last couple of years, a number of government-sponsored projects stalled and investors pulled out due to
apprehension over the uncertain economic future. Last quarter (1Q FY15) witnessed a sharp positive reversal in
number of projects revived.
Pent up demand
• We expect restarting of stalled projects to be a key demand driver in the medium term, before we witness new
demand kicking in from recently announced infrastructure projects.
• cUS$7.3bn worth of projects were revived in the September 2014 quarter alone.
Source: CMIE, Government of India, RBI, CMA Barclays Research
FIGURE 27 FIGURE 28
Demand split by region (FY14) – North India is the largest Demand breakdown by end-user (FY14) – rural housing
cement market with c30% of overall demand remains the biggest end user at c40%
Industrials
South
18%
West 25%
29%
Rural
housing
40%
Infra
17%
East
16% North Urban
30% housing
25%
Source: CMA, Ministry of Commerce, RBI, Barclays Research Source: CMA, Ministry of Commerce, RBI, Barclays Research
15 December 2014 17
What factors will drive demand?

• Strong growth from rural housing to sustain: Housing construction remains the
biggest end-user of cement in India (65% of demand as of FY14), with the rural
segment making up a significant chunk of this demand (40% of overall demand). We
expect rural housing demand to remain elevated and see the following four as key
demand drivers for cement in the rural market: 1) agricultural productivity gains and
crop yields translating into higher rural incomes; 2) eight Empowered Action Group
(EAG) states, mostly in eastern India, where the proportion of permanent houses as well
as urbanisation significantly lags the all-India average; 3) state-sponsored rural housing
schemes like Indira Awas Yojana (IAY) and Rajiv Awas Yojana (RAY); and 4) long-term
trends like population growth and migration. As such, we expect cement demand from
housing to remain strong in the next three to four years.
FIGURE 29 FIGURE 30
Wage rates in rural India have grown at a 12% CAGR over We see rural areas in eastern states as having significant
the last nine years cement demand potential from the shift to pucca houses
200 80.0 %
180 70.0
160 60.0
CAGR - 12%
140 50.0
120 40.0
100 30.0
80 20.0
60 10.0
40 0.0
20 Bihar Chattisgarh Jharkhand Orissa West
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Bengal
Wage Rate (Rs/Day) % of semi-pucca and kutcha houses All-India average
Source: Ministry of Rural Development, Ministry of Labor, Barclays Research Note: Data as of 2013.
Source: National Sample Survey Office (NSSO), Barclays Research
FIGURE 31 FIGURE 32
The government increased unit (per housing unit) Execution of schemes has been slow so far, we expect a pick
assistance under the IAY scheme by c55% in 2013 up under the new central government (IAY – Targets)
Rs 110.0%
80,000
100.0%
70,000
60,000 90.0%
50,000
80.0%
40,000
30,000 70.0%
20,000 60.0%
10,000
50.0%
-
1990
1994
1996
2004
2008
2010
Apr'2013
40.0%
FY08 FY09 FY10 FY11 FY12 FY13*
Plain Areas* Hilly/Difficult areas Funds utilization(%) Completed houses / target (%)
Note: *Plain areas suggest a flat terrain. Note: *Up to February 2013
Source: Ministry of Rural Development, Planning Commission, Barclays Research Source: Ministry of Rural Development, Planning Commission, Barclays Research
15 December 2014 18
• Urban real estate also expected to pick up: The government increased interest
exemption on loans for a self occupied property from Rs150,000 per year to Rs200,000
per year in the current year’s (2014-15) union budget. Many private banks also recently
announced cuts on home loan rates, although base rates remain unchanged (Live Mint,
26 August 2014). We view these announcements as a positive for urban real estate
demand, which in turn drives the demand for cement. Also, with the global economy
gradually improving, we expect a gradual revival in demand for commercial real estate
at urban centres. Research from our IT team also highlighted that demand trends for the
Indian IT Services sector continue to be positive with the improving US macro outlook
(see India IT Services: Takeaways from 3QCY14 ISG conference call, 15 October 2014).
The IT sector historically has been a key consumer of commercial real estate demand at
urban centres in India.
FIGURE 33 FIGURE 34
Housing loan interest exemption limit from income tax for RBI’s recent urban consumer confidence surveys highlight
self‐occupied property has increased improved perceptions on spending (forward looking)
Rs % Increase Remain same Decrease

250,000
100 5.3 5.1
9.1 8.2 5.2
90 17.1
200,000
80 30.8 27.8
31.8 35.8
70 46.4
150,000
60 41.2
50
100,000
40
63.9 67
30 59.1 58.9
50,000 41.7 45.4
20
10
- 0
FY96 FY98 FY99 FY00-FY14 FY15 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
Source: Government of India, Barclays Research Source: RBI Consumer Confidence Survey (September 2014), Barclays Research
FIGURE 35
Interest rates are expected to be cut
Siddhartha Sanyal, our Chief 9
9 (%)
India Economist, predicts a Repo Rate
50bps reduction in the interest 8
8
rate in the next two quarters
7
(see India Quarterly Outlook: A
7
step change).
6
6
5
5
4
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Source: Bloomberg data, Barclays Research estimates
15 December 2014 19
• Key infrastructure projects like DFC and DMIC to spur cement demand; revival of
stalled projects also a key medium-term driver: Large infrastructure projects like
Dedicated Freight Corridors (DFC) and the Delhi Mumbai Industrial Corridor (DMIC)
should be key demand drivers for cement in the coming years. We expect the 1,483km
DFC alone to generate c37mt of additional cement demand. We expect the 930km
phase connecting Rewari in Haryana to Vadodara in Gujarat to be completed by 2017
and thus it could represent a major thrust of demand in the infrastructure space. The
other two phases are expected to be completed by 2018, and thus 2016 and 2017 are
likely to witness a significant rise in cement demand, in our view.
FIGURE 36 FIGURE 37
Breakdown of DFC road length by state DFC should generate c37mt of additional cement demand
km 20.0 mt
700
16.0
600
500 12.0
400
300 8.0
200
4.0
100
0 0.0
2015 2016 2017 2018
Rewari-Iqbalgarh Iqbalgarh-Vadodara
Vadodara JNPT Rewari - Dadri
Source: DMICDC, Barclays Research Source: DMICDC, Barclays Research estimates
Restarting of stalled projects: Last quarter (2Q FY15) witnessed a pick-up in new project
additions, along with a sharp positive reversal in the number of projects revived. We expect
the restarting of stalled projects to be a key medium-term demand driver before we witness
new demand kicking in from announced infrastructure projects. We also expect cement
demand to receive a major push once the infrastructure projects are taken towards
execution.
FIGURE 38
Pent up demand – revival of stalled projects has picked up and should drive cement
demand
cUS$7.3bn worth of projects 50
were revived in the September 45
40
2014 quarter…
35
30
…including major projects: 25
Essar Oil Vadinar refinery, 20
15
NMDC Bellary steel plant, and
10
the Lafarge cement plant 5
0
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
No. of projects revived

Source: CMIE, Barclays Research
15 December 2014 20
• Resolution of political unrest in Andhra Pradesh (AP) a key positive for the southern
region: The political turmoil in AP could have led to a cumulative demand loss of c4mt in
South India over FY10-14, in our view. However, we expect demand to rebound strongly
(8% CAGR over FY14-17E vs. 1% CAGR over FY10-14E), driven by the special economic
status accorded to Telangana (newly created state post its bifurcation from AP) and also
any revival in the real estate market with an improvement in IT Services hiring. We expect
the new states alone to generate c6mt of additional demand on account of: 1) the
revival of infrastructure projects or other investments which were either stalled or
postponed due to the uncertain political environment; 2) new demand on account of an
announced infrastructure package for the newly formulated states, coupled with spend
on necessary government infrastructure; and 3) planned power generation capacity
expansion in both Andhra Pradesh and Telangana. Recent management commentary on
the demand outlook from South-based cement companies have also shown an
improvement (i.e. quarterly commentary from South-based companies such as Ramco
Cement and Sagar Cement have been positive on the cement demand outlook).
FIGURE 39
South India cement demand outlook – Andhra Pradesh getting back on its feet
Mt
85.0
a ) Organic growth b) De-growth in AP d) Demand from
c) Restoration of old projects in AP creation of new state
75.0
6.0
65.0 6.0 (a)

6.3 3.6 3.6 75.3
(d)
55.0 (b) (c)
(a) 59.7
57.0
45.0
FY10 South FY 14 South FY 17 South
Demand Demand Demand
Source: CMA, CMIE, Company data, Barclays Research estimates
FIGURE 40
Creation of new states has historically spurred demand, with demand from the divided states growing at a faster rate than the
rest of the country
CAGR FY00-FY05 Cement Demand CAGR

Cumulative demand for divided states - Additional demand due
9.1% to split spreads over 4-5 years
8.4%
mts 1.53x
8.0%
475.5
500.0
5.7% 400.0
309.7
1.75x
5.0% 300.0
200.0 147.8
84.7
100.0
2.0% -
UP MP / Chhattisgarh Bihar / Jharkhand Divided States India excluding divided states
State Growth India ex. divided states Pre Div (FY94-99) Post Div (FY00-05)
Source: CMA, RBI, Barclays Research
15 December 2014 21
We expect a strong rebound in cement demand growth

While we expect cement demand growth to remain muted in FY15, we see multiple drivers
for a strong rebound from FY16 onwards. We forecast demand growth of c6.5% and 7.8%
in FY15E and FY16E, respectively, and a sharp uptick in FY17E to c8.2% (compared to
c2.8% in FY14 and c7.7% average demand growth in the last 10 years). We expect a sharp
uptick in demand once infrastructure projects and initiatives announced by the new
government come on stream. Infrastructure demand and pent up demand from stalled
projects should drive overall cement demand, although the benefits of the same will likely
only be reflected from FY16 onwards.
FIGURE 41
India Cement – sharp rebound in cement demand expected from FY16 as infrastructure projects announced by the new
government come on stream
y/y growth %
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
All India demand growth (y/y %)
Source: CMA, Ministry of Commerce, Company data, Planning Commission of India, Barclays Research estimates
Long-term outlook remains strong

Despite the recent tapering of cement demand, we see the long-term potential for the cement sector in India as remaining
strong. Lower per capita consumption of cement and an expected uptick in infrastructure growth leaves substantial
headroom for industry growth, in our view. India's annual per capita cement consumption (c200kg) looks relatively low
when compared to the world average of over c550 kg per capita, highlighting the potential for growth.
Over the past 15 years, the per capita consumption of cement in India has nearly doubled. Housing and infrastructure have
been the key demand drivers and continue to receive policy support from the government. We see cement demand from
the housing sector as being driven in coming years by the increasing per capita income, nuclear families, rapid urbanization
and government stimulus to various rural and affordable housing schemes. These trends do not show any immediate signs
of deceleration. Furthermore, with increasing industrial activities, real estate, construction and infrastructure, we expect to
see sustained growth in cement demand.
As the Indian economy matures, we expect cement consumption per capita to increase substantially. We also expect Indian
consumption to evolve along the ‘cement consumption curve’ (see Figure 44).
15 December 2014 22
FIGURE 42
India’s current consumption levels remain low in comparison to global levels
1800 kg/capita Global avg at 536kg/capita is substantially higher than 120000

1600 India's per capita consumptiof c200kg/capita.
100000
1400
1200 80000
1000
60000
800
600 40000
400
20000
200
0 0
Cement consumption (kg/capita) GDP/capita (US$) - rhs
Source: Cemweek, Barclays Research
FIGURE 43
India’s cement consumption is likely to evolve in the coming years
3,500
Qatar
3,000
Cement Use Per Capita (Kg)
2,500
2,000 Saudi Arabia

China
1,500
South Korea UAE

1,000 Iran
Turkey Japan Singapore
500
Malaysia France Finland
Russia Italy Switzerland Norway
India Brazil Spain UK Germany United States
‐ Thailand
‐ Indonesia 20,000 40,000 60,000 80,000 100,000 120,000
GDP Per Capita (US$)
Source: International Cement Review, World Bank, Barclays Research
15 December 2014 23
Road transportation – expect significant expansion and investments in the long run
In a recent report (India Transport & Logistics - Megatrends: Growth foundation, 16 October 2014), our AEJ Infrastructure &
Transport team highlighted the requirement for significant investment in road infrastructure to meet burgeoning freight
demand. Indian road freight traffic has increased at a CAGR of 9% (GDP elasticity of 1.3x) in the past 25 years and carries
c70% of Indian freight movement. If things continue at the current pace, the team believes road freight traffic may increase
5x by FY32 to c7,293BTKMs. To handle such large freight and passenger movement (increasing 5x to c40k BPKMs)
significant private investments would be needed, in our view. The National Transport Development Policy Committee
(NTDPC) expects an investment need of cRs44.7tn until FY32E (cUS$745bn) in the road sector in India.
FIGURE 44
We estimate NHAI has still to award cRs1,500bn of projects (19,184km) under the National Highway Development Project
(NHDP) programme
Est. Total Total cost
Total Under Balance Cost Cost est. remaining original est. at current
length Completed implementation for award (Rs mn/km) (Rs mn/km) award project cost price
Phase (km) (km) (km) (km) - FY07 - FY14 (Rs bn) (Rs bn) (Rs bn)
Phase I & II 13,368 12,505 446 417 62 93 39 827 1,244
Phase III 12,109 6,098 4,326 1,685 65 98 165 789 1,187
Phase IV 14,799 483 4,575 9,741 14 21 204 206 309
Phase V 6,500 1,819 2,262 2,419 63 95 231 412 620
Phase VI 1,000 0 0 1,000 167 223 223 167 223
Phase VII 700 22 19 659 238 319 210 167 223
Total 48,476 20,927 11,628 15,921 1,072 2,568 3,806
Stuck premium bid projects 3,263 0 0 3,263 97 129 422
Total + potential re-auction 19,184 1,493
Source: National Highway Authority of India (NHAI), Barclays Research estimates
Government considering concrete roads for national highways

The Ministry of Road Transport and Highways in recent publications (including the proposal by transport minister Mr. Nitin
Gadkari in September 2014) has stated its preference for concrete cement roads as opposed to bitumen. It is considering
using concrete roads for national highways. With major road infrastructure construction expected in the coming years, any
shift in policy towards concrete could translate into a major uptick in demand for cement. The Ministry has also stated it is
considering entering into rate contracts with firms to buy concrete and cement so that builders and contractors can acquire
the material at cheaper rates. This policy shift towards concrete comes on the back of many indigenous advantages of
concrete, i.e. despite the higher initial building costs, the superior durability of concrete over asphalt ensures lower
maintenance costs. Similarly, the energy requirements for laying cement concrete roads are about five times less than tar
roads, as per our estimates. Furthermore, import of bitumen also adds to the country’s import bill.
FIGURE 45 FIGURE 46
Concrete vs. asphalt, durability comparison Full life cycle cost of concrete is significantly lower versus
asphalt despite its slightly higher initial cost.
Base Cost = 100
200
Concrete 30 years 150
100
Concrete roads typically last 50

Asphalt 10 years for three times longer than
asphalt roads
0
0 10 20 30 40 Life Cycle
Years costs
0 5 10 15 20 25 30
Asphalt Concrete
Source: Company data, Barclays Research Source: Company data, Barclays Research
15 December 2014 24
Expect tax burden to subside; measures such as Goods & Services Tax (GST) to simplify legislations
The tax rates levied on cement in India are amongst the highest within the developing nations. This puts cement producers
at a significant disadvantage, especially in down-cycles when pricing power is minimal. The taxes levied include VAT (value-
added tax), excise duties, electricity duties, mining royalties, and import duties on input materials.
We expect new legislations – such as the GST – should help ease the burden on cement manufacturers in India. GST is
expected to replace all indirect taxes levied on goods and services by the Indian Central and State governments. We believe
it will aid the cement companies to adhere to the regulatory framework alongside offering benefits of faster turnaround
times for projects.
FIGURE 47 FIGURE 48
Tax rates on cement in India are amongst the highest in Tax rates on cement are higher than other commodities and
developing countries core sectors in India (FY14)
Direct and indirect Tax Rate %
36% 16%
35%
32% 14%
12%
20% 10%
18%
16% 15% 8%
13%
10% 6%
4%
2%
0%
Aluminium Copper Steel Cement
VAT Excise Tax
Source: CII, Barclays Research Source: CII, AT Kearney, Barclays Research
15 December 2014 25
THEME #2 – UTILIZATION TO IMPROVE AS SUPPLY GROWTH SLOWS

India’s cement industry added capacity at a brisk pace (13% CAGR) between FY08 and
FY12. Meanwhile, cement demand growth slowed considerably over the same period.
The pace of capacity additions has slowed in the past couple of years on the back of
high capital costs (notably land), falling utilisation rates, and low returns, in addition to
the demand growth issues. Although we expect an uptick in cement demand over FY14-
17E, we do not expect to see similar growth in capacity additions as: 1) low limestone
concentration in northern clusters has created entry barriers; 2) average set up time for
a greenfield plant has increased considerably; 3) new capacities are still not viable at
current profitability levels; and 4) we expect muted capacity growth in the South of
India, as any incremental demand would be absorbed by the existing excess capacity. As
a result, we expect capacity additions to grow at a slower pace of a 4.4% CAGR over
FY14-17E. Furthermore, increasing logistics costs have restricted inter-regional
movement, rendering a number of grinding units unviable. We argue that excluding the
unviable units, the industry utilisations are higher, which should provide support to
cement prices in the medium term.
FIGURE 49
Cement capacity growth in India is expected to be muted during FY14-17E
mt Growth
450 25%
400 Muted capacity growth
350 20%
300
15%
250
200
10%
150
100 5%
50
0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
India Capacity India Growth
FIGURE 50 FIGURE 51
Outlook for cement capacity growth by region Split of cement capacity by region (FY14)
60.0 mt
West
50.0 27%
South
40.0 37%
30.0
20.0
10.0
East
0.0 9%
-10.0
North
North East West South 27%
Source: CMA, Company data, Planning Commission, Barclays Research estimates Source: Company data, CMA, Planning Commission, Barclays Research
15 December 2014 26
Why do we expect supply growth to remain muted?

• Low limestone concentration in northern clusters creating entry barriers: Low
concentration of limestone resources in the North (16% compared with 50% for the
South) is creating barriers for setting up new cement plants in the North. Thus, we believe
greenfield capacity additions in the North by newer players will significantly decrease, as
indicated by average annual capacity additions planned by cement firms of only c5mt for
FY15-17E compared with c8mt of average annual capacity between FY10-14.
FIGURE 52
Bulk of limestone resources (50% as of FY14) are located in southern India
Cement Production
Clusters of India
Satna
Limestone resources in the
North of India are already
occupied by existing Chanderia
plants/companies, leaving
little room for new greenfield
Bilaspur
capacities to be built in the Chandrapur
region
Gulbarga
Nalgonda
Yerraguntla
North
East
West
South
Source: CMA, Indian Bureau of Mines, Barclays Research
• Average set up time for greenfield plant has increased: The time required to set up a
greenfield cement plant has increased over the last decade to approximately five to
seven years. Under the ‘Land Acquisition Bill’ 2013, the clause requiring mandatory
consent of 80% of owners for private projects and consent of 70% landowners for PPP
projects is likely to lead to delays in the process of land acquisition and in turn the
projects.
FIGURE 53
Time required to set up a new cement plant has increased in India over the last decade
8-12
Now 30-40 months 30-40 months
months
12-18
Previously 14-20 months 30-40 months
months
Land Acquisition Environmental clearances Plant build up
15 December 2014 27
• New capacities are not viable at current profitability levels: We estimate that the
current replacement cost for a 1mt cement plant in India is in the range of Rs6-7bn,
excluding the cost of land, transportation infrastructure (railway sidings), and captive
power plants. Inclusive of these facilities, we estimate the cost of a 1mt plant would be
in the range of Rs8-9bn (assuming a INR/USD rate of 61). Deceasing availability of
linkage coal and increasing freight costs have further decreased the expected return on
capital employed (RoCE) of a greenfield cement plant.
FIGURE 54
India Cement – capital cost of a greenfield cement plant with captive power plant
Particulars US$/t
Land and mining rights 40

Plant and machinery 50
Civil works 22
Others 20
Captive power plant 20
Total capital cost 152
FIGURE 55
India Cement – RoCE of new cement capacity at current profitability levels
Ramp-up period At 70% utilisation levels At optimum utilisation
EBITDA/t of new cement plant (US$/t) 10 15 25

Less: Depreciation @ 5% (US$) 8 8 8
EBIT/t (US$/t) 2 7 17
Capital employed (US$/t) 152 152 152
RoCE (%) 1.58% 4.87% 11.45%
• Regional overcapacity (in South): Capacity addition growth in the South of India is
expected to slow down in response to large overcapacity. We expect just a c2% CAGR in
cement supply additions over FY14-17E, significantly less than the 9.4% CAGR seen
over FY09-14. The last few years have seen a host of new players setting up cement
plants, creating significant overcapacity in the region (c43% of the new capacity has
come from new entrants). The immediate expansions announced are primarily located
in Gulbarga and the Karnataka belt, aimed primarily at serving the Western markets
(Mumbai).
FIGURE 56
Utilisation in South expected to rise to 62.9% in FY17E, compared to 73.6% for pan-India
100%
90%
Despite the uptick in cement
demand, we expect utilisation 80%
levels to remain low in the
70%
South due to large existing
overcapacity 60%
50%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Source: CMA, CMIE, Barclays Research estimates
15 December 2014 28
FIGURE 57 FIGURE 58
Overcapacity has been driven by large capacity additions Majority of the new capacity expansions are only scheduled
from smaller/new players to come on stream from FY17E onwards
mt Company State Cluster Capacity Exp. Time
140
130 Madras Cements AP Jayantipuram 1.0 Jul-16
120 Orient Cement Karnataka Gulbarga 3.0 Apr-17
110 Anjani Portland Karnataka Bijapur 1.0 May-17
100
Chettinad AP Guntur 3.5 Jun-17
90
Jaiprakash AP Guntur 1.6 Apr-17
80
Murli Agro Karnataka Gulbarga 3.0 Apr-16
70
Prism cement AP Kurnool 9.3 Sep-16
60
FY10 Expansion FY14 Expansion FY16E Shree Cement Karnataka Gulbarga 4.0 Sep-16
South Capacity Large, established firms New entrants Zuari Cement Karnataka Gulbarga 3.0 Sep-16
Source: CMIE database, Company data, Barclays Research estimates Source: CMIE database, Company data, Barclays Research
Utilisation adjusting for unviable grinding units is higher

Higher-than-average lead distances, increasing freight costs and a sharp increase in diesel
prices has led to higher fuel costs limiting the inter-regional movement of cement,
especially between the cement clusters based in the North and South of India. This has led
to a number of grinding units becoming unviable due to longer lead distances from base
clinker units. We argue that adjusting for these unviable units, industry utilisations would
have been significantly higher than the reported numbers (FY10-14).
Although it is difficult to know the exact total volume of such unviable capacity, we
estimate that as much as c60mt of existing grinding capacity is unviable owing to longer
lead distances. Excluding the unviable capacities, we estimate that industry utilisation in
FY14 would have been 78% (vs 68% unadjusted).
FIGURE 59
Adjusted utilisation levels for the India cement industry are much higher
86%
84%
79%
79%
74% 74%
69%
64%
Utilization Utilization - excluding South Utilization - adjusting for unviable grinding units
15 December 2014 29
FIGURE 60
Barclays Research India Cement demand & supply model
North FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Year-end capacity (mt) 28.7 29.3 30.3 32.5 34.4 37.3 52.3 55.1 71.5 81.0 84.5 90.6 95.4 103.0 106.4 110.9
Production 23.8 26.6 28.8 29.0 30.9 37.2 41.8 46.8 54.2 58.4 63.9 67.5 68.6 75.9 83.8 92.5
Demand (mt) 31.5 34.1 36.3 38.4 41.3 45.8 49.8 52.9 57.7 60.0 66.2 70.1 72.8 79.0 86.1 94.1
Demand growth (%) 12.2% 8.2% 6.5% 5.8% 7.5% 10.9% 8.8% 6.3% 9.0% 4.0% 10.3% 5.9% 3.9% 8.5% 9.0% 9.2%
Region based Utilisation(%) 82.7% 90.7% 95.2% 89.2% 90.1% 99.7% 79.9% 84.9% 75.8% 72.2% 75.7% 74.5% 71.9% 73.7% 78.8% 83.4%
East FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Production 8.1 9.6 9.6 10.8 11.7 11.5 13.9 15.3 14.0 16.1 17.5 19.1 19.0 22.0 23.6 26.2
Demand (mt) 14.8 15.6 16.1 18.3 19.6 20.5 21.5 24.1 28.2 31.0 32.3 35.1 37.4 39.2 41.3 44.3
Demand growth (%) 15.0% 5.1% 3.0% 13.8% 7.2% 4.5% 5.2% 11.7% 17.3% 9.8% 4.0% 8.7% 6.7% 4.8% 5.4% 7.2%
West FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Production 40.7 41.8 43.2 49.8 54.7 56.1 57.8 58.8 67.6 70.0 75.1 76.7 82.6 82.8 86.7 93.5
Demand (mt) 26.6 28.3 30.0 33.7 35.8 38.7 44.0 47.0 54.8 60.7 66.4 67.9 68.9 72.2 76.9 82.8
Demand growth (%) 5.5% 6.3% 6.1% 12.2% 6.4% 8.0% 13.7% 6.8% 16.5% 10.9% 9.4% 2.3% 1.5% 4.8% 6.5% 7.6%
Region Based Utilisation 88.7% 85.3% 82.5% 89.7% 95.6% 97.2% 91.0% 91.7% 91.2% 82.8% 86.9% 77.7% 84.5% 80.2% 77.3% 81.1%
South FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Production 32.8 33.0 35.4 35.1 44.2 50.1 54.1 60.0 64.4 65.4 67.1 72.0 72.0 77.0 83.6 88.0
Demand (mt) 26.1 29.7 31.5 30.7 38.9 44.0 48.7 53.8 57.0 55.7 56.3 59.2 59.7 63.9 69.8 75.3
Demand growth (%) 9.6% 13.7% 6.1% -2.3% 26.4% 13.2% 10.6% 10.5% 6.0% -2.2% 1.0% 5.3% 0.8% 7.1% 9.1% 7.9%
All-India FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Production 105.4 110.9 117.0 124.7 141.6 154.8 167.7 180.9 200.1 209.9 223.6 235.3 242.2 257.7 277.6 300.2
Demand (mt) 99.0 107.6 113.8 121.1 135.6 149.0 164.0 177.7 197.7 207.4 221.1 232.3 238.9 254.4 274.2 296.5
Demand growth (%) 10.0% 8.7% 5.8% 6.4% 12.0% 9.9% 10.1% 8.4% 11.2% 4.9% 6.6% 5.1% 2.8% 6.5% 7.8% 8.2%
15 December 2014 30
THEME #3 – EXPECT FURTHER CONSOLIDATION & GREATER PRICING POWER

Unlike in the past, we expect the next leg of expansions over FY14-17E to be dominated
by large companies in each region. We also believe current valuations support
acquisitions over setting up greenfield capacities, hence we expect consolidation to
accelerate further ex-South (a fragmented market). This would likely lead to increased
pricing power as we believe large players are more likely to maintain
production/pricing discipline. Large players (i.e. those with over 15mt of capacity) have
traditionally preferred profitability over market share and we estimate the earnings
sensitivity to a 10% change in sales realisations is significantly (3-5x) higher than a 10%
change in sales volumes. Ex-South, the Top 5 players now control c60% of the national
market. Also, smaller cement companies that participated aggressively in terms of
capacity build from FY08-14 are now significantly leveraged and need higher cement
prices to cover their debt servicing obligations. As such, we expect that overall
improving utilisation levels and potential consolidation could lead to greater pricing
power in the medium term.
Next phase of capacity additions likely by larger, established producers

The next phase of expansion in the industry, until FY16E, is likely to be driven by the larger,
established producers, in our view. Our estimates suggest that as much as c71% of the
expected capacity additions will be driven by larger players, which reduces the risk of price
wars. We expect the focus of these companies to remain on profitability, rather than on
pushing volumes aggressively. Large cement manufacturers have tended to focus on
maintaining profitability of their overall business by maintaining supply discipline, even at
the cost of losing market share. This is because profitability for the larger players is more
sensitive to price cuts than incremental volumes. Our sensitivity analysis shows that a 10%
change in sales realisation has 3-5x more impact than a 10% change in sales volumes.
FIGURE 61
India Cement – we expect the bulk of capacity additions in coming years to be from larger players consolidating their positions
mt
410
390
370
350
330
310
290
270
250
Smaller cement companies also likely to maintain discipline

Assuming a cost of capital of 11% (in-line with the historical average), we estimate current
EBITDA (per ton) at current utilisation levels would need be cRs575/t to cover the
immediate interest cost. Thus, the smaller cement companies might be forced to maintain
pricing discipline to cover debt. Furthermore, in order to generate a healthy RoCE, cement
firms would need to earn a much higher EBITDA/t. We do not expect the smaller companies
to engage in price wars or to undercut larger players by pricing their offerings aggressively.
15 December 2014 31
FIGURE 62
India Cement – smaller companies are being forced to maintain pricing discipline to cover interest obligations
Particulars Units Capital cost scenarios
Capital cost/t for 1m tonne new capacity US$ m 110 120 130
Assumed debt-equity ratio x 0.5 0.5 0.5
Assumed interest rate % 11% 11% 11%
Implied interest cost US$ m 6.1 6.6 7.2
Assumed depreciation rate % 5% 5% 5%
Assumed capacity utilisation % 70% 70% 70%

Cement volumes mt 0.7 0.7 0.7
EBITDA/t needed to cover interest cost US$/ t 9 9 10
EBITDA/t needed to cover interest cost Rs/t 527 575 623
EBITDA/t needed to generate 12% RoCE Rs/t 1,630 1,778 1,926
Expect further consolidation excluding South

With the lower return outlook on greenfield expansions, we expect companies to rather take
the inorganic route. In fact, we believe current valuations support acquisitions over setting
up greenfield capacities, hence we expect consolidation to accelerate further ex-South.
Recent M&A transactions suggest expectations of sellers remain reasonably low at levels of
US$120-130 per tonne of cement capacity; approximately 1x replacement cost. Apart from
physical infrastructure gains, we believe the benefits of an acquisition rather than a
greenfield build could include gaining an established dealer network, lower advertising &
marketing expenditure, and saving the build up time (now as high as seven years). In
addition, working capital requirements for a new cement brand are typically higher than for
an established brand.
The northern region has had relatively little consolidation taking place in the past few years
compared to the South and Central regions of the country. However, we expect M&A
activity could pick up in the North given: 1) increasing market attractiveness with improving
utilisations and pricing power, and 2) limited scope for greenfield expansion due to tying up
of existing limestone resources. Companies looking to set up new capacities in the North
are likely to face significant entry barriers as limestone resources are concentrated in the
South (50% of all of India’s resources compared with just 16% in the North) (Figure 53).
Likewise, despite the high consolidation levels to date, the market in the West may also see
some M&A as the cement demand scenario improves. Unlike in the North and West, we do
not expect major consolidation to be seen in the South, given that the situation of existing
overcapacity in the system is likely to continue, despite the expected uptick in demand.
Similarly, with a number of new capacities coming on stream in the East in FY15/FY16
(driving up surplus capacity in the region), we expect M&A activity to remain muted.
History of M&A in India Cement

The Indian cement industry has witnessed a wave of consolidation in the past 20 years, with global companies acquiring
domestic players in order to participate in the long-term growth prospects of the cement business in India. Grasim (Aditya
Birla) acquired Ultratech Cement from L&T in 2004; global cement major Holcim entered the Indian market soon after with
the acquisition of ACC and Ambuja; and other significant entries through the inorganic route include Heidelberg Cement
(2006), Italcementi (2006) and Vicat (2008).
15 December 2014 32
FIGURE 63
India Cement – the Top Five manufacturers have more c60% of capacity market share (ex-South) (end-FY14)
Market Market Market Market
Company Capacity Company Capacity Company Capacity Company Capacity
UltraTech 13.8 14% Lafarge 5.6 17% UltraTech 22.4 23% Chettinad 14.2 11%
Shree Cement 13.5 14% Orissa Cement 5.4 16% Jaiprakash 16.0 16% UltraTech 14.1 11%
Ambuja 12.7 13% ACC 4.4 13% Ambuja 13.7 14% Ramco 13.7 10%
Jaiprakash 10.7 11% UltraTech 3.8 11% Century 7.8 8% India Cements 13.0 10%
ACC 8.2 9% Ambuja 2.8 8% ACC 7.8 8% ACC 10.4 8%
Total 95.4 62% Total 33.5 65% Total 97.7 69% Total 132.1 49%
Source: CMA, CMIE, company data, Indian Bureau of Mines, Barclays Research
FIGURE 64
India Cement – to continue witnessing consolidation; snapshot of key transactions in last 12 months
Date Target Acquirer Region Details EV/t ($/t)

Aug-14 JP Panipat Shree Cement North Grinding Unit at Panipat. NA
grinding unit
Jul-14 Vicat Sagar Parficim South 5.5 mt plant in Gulbarga, Karnataka. First phase of this facility, NA
(47% stake) capable of producing 2.75mt, was completed in Dec-2012 with
commencement of production in Jan-2013.
Mar-14 Bokaro Jaypee Dalmia East 2.1 mt capacity. Unit has a 30-year long term clinker supply 122
Cement Cement arrangement with Jaiprakash Associates and 30-year slag supply
Limited (74% arrangement with SAIL.
stake)
Mar-14 Anjani Chettinad South Chettinad acquired a 17.08% stake through an open offer. Company NA
Portland Cement targets to increase its presence in the Andhra Pradesh.
(66.08% stake)
Oct-13 Heidelberg JSW Steel West Cement grinding facility in Raigad, Maharashtra. Capacity of 0.6mt. NA
India (Raigad
unit)
Sep-13 Jaypee (Gujarat Ultratech West 4.8mn tonne cement capacity in Kutch, Gujarat; the deal also 126
cement unit) includes a 57.5MW captive thermal power plant, a jetty and lime
stone reserves with a mine life of 90 years.
FIGURE 65
Historical cement transactions – low levels of consolidation seen in the North
Year Target Acquirer Region EV/t
2013 Shri Jayajothi CRH South 99

2013 Lafarge India Barings Private Equity East 155
2012 Adhunik Dalmia East 133
2012 Calcom Dalmia East 114
2011 Andhra Cement Jaypee South 71
2010 Dalmia KKR South and East 81
2008 My Home Industries CRH South 230
15 December 2014 33
THEME #4 – PEAK COST PRESSURES APPEAR TO BE BEHIND

The operating costs per ton of the India cement industry have witnessed a sharp
increase over the past five years, driven by multiple increases in domestic diesel prices,
railway freight hikes, low availability of linkage coal, and a sharp increase in seaborne
coal prices. However, we believe the peak of these cost pressures is now behind and
expect the increase in operating costs to moderate as: 1) we expect the frequency and
quantum of freight hikes to come down; 2) diesel prices have been de-regulated, and we
have witnessed a downward correction (in the last six months) on account of the fall in
global crude prices; and 3) there has been a decrease witnessed in international thermal
coal prices in the last 8-12 months. Although we expect raw material costs may sustain
at higher levels on account of ongoing mining closures and limited availability of
gypsum, we also expect operating costs to even out from here.
FIGURE 66
India Cement – input costs have increased steadily in the last five years, mainly on account of increasing logistics costs; we
expect cost pressures to subside
FY07‐FY14 ‐ Cost‐t increased sharply at a CAGR of c9% Pace of cost increase to slowdown
Cost - t Multiple increases in domestic diesel prices, railway freight hikes, low availability
4,000 of linkage coal, and a increase in seaborne coal prices drove up costs
FY01‐07
3,000 Stable costs; CAGR of c5%
2,000
1,000
-
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
FIGURE 67 FIGURE 68
India Cement – cost structure of cement operations (FY14) India Cement – input costs have increased steadily in the last
five years
Power & Rs/t

fuel costs 3100 2949
375
26%
2900
Others 2700
40% 185
2500 75
235
Raw 2300
2079
material 2100
costs
10% 1900
Freight
costs
24%
Source: Company data, Barclays Research Source: CMA, Company data, Barclays Research
15 December 2014 34
Why we expect the increase in operating costs to moderate?

• Freight costs to subside: As we expect the frequency and quantum of freight hikes to
come down in the medium term, we also expect increases in freight costs to subside.
Indian Railways increased freight charges by almost 25% between March 2012 and
September 2013. Furthermore, in June 2014 it announced another freight hike of 6.5%,
including a fuel adjustment component (FAC), which is ~1.5% in the case of freight.
Post these sharp corrections, we expect any further upward revisions would be more
spaced out (less frequent) and gradual. Furthermore, with the expected revival in
demand, we believe the cement companies would be able to pass on a significant
portion of any future cost increases.
• Correction in diesel price; fall in global crude: The Union Government recently
announced a decision to deregulate diesel prices (as highlighted in our Oil & Gas team’s
19 October update on the subject). Post the announcement, India’s oil marketing
companies (OMC) cut diesel prices by 6% to factor in the recent correction in global
prices.
FIGURE 69
India has freed up diesel prices with OMCs announcing a 6% cut in prices to factor in
lower global rates
75 Diesel prices in New Delhi (Rs/liter)
The government has de- 70
regulated diesel prices, 65
announcing a 6% cut to factor 60
in lower global rates, but the 55
real test of deregulation will 50
45
come as global prices rise.
40
35
30
25
Required price Actual price
Furthermore, as our Oil & Gas team believes crude prices in the global market are likely
to remain low in the near term, this should aid the cement firms (with diesel prices also
expected to follow the crude prices).
FIGURE 70
Impact of falling crude prices – Sensitivity of EPS to changes in freight costs
Sensitivity of EPS to change in freight cost/t/Km (A)

Lead Logistics cost Freight
distance CY13/FY14 Volumes costs/t/Km -5% change -2% change in 2% change in 5% change
Company (Kms) (Rs mn) (mt) (A) in (A) (A) (A) in (A)
ACC 375 22,992 23.9 2.6 11% 4% -4% -11%

Ambuja 400 23,703 23.3 2.5 7% 3% -3% -7%
Shree Cement 550 11,905 14.3 1.5 7% 3% -3% -7%
Ultratech 450 45,967 43.0 2.4 8% 3% -3% -8%
15 December 2014 35
• International thermal prices declining making import a viable option; increasing use
of alternate fuels to further help companies: With Coal India being directed by the
government to prioritise the needs of the power sector, availability of coal in the
domestic market has decreased substantially. Decreasing coal linkages to the cement
industry, as well as reduced volume availability (coupled with increased prices) in e-
auction, have increased dependence on imported coal. However, international coal
prices have moderated significantly in the past year, increasing the viability of imported
coal. We do not foresee additional cost pressures on power and fuel costs for the
cement industry, particularly for firms that have captive power plants.
Fuel cost optimisation continues to be a major theme in the industry. Companies are
making significant time and capital investments to enable cement plants to be more
adaptable to using cheaper fuels such as pet-coke and other alternative fuels. Also,
companies have invested in waste heat recovery system (WHRS) plants, which help to
reduce power costs and protect against volatility in international commodity prices and
exchange rates.
FIGURE 71 FIGURE 72
International thermal coal prices have moderated Fuel cost optimisation; increasing usage of cheaper fuels
significantly over the past year over the past three years such as pet-coke and alternative fuels (ACC+Ambuja)
US$/t
140
1% 3% 3%
120
21% 20%
100 35%
80
60 47% 47%
40 48%
20
29% 30%
0 15%
Feb-12
Oct-12
Feb-13
Oct-13
Feb-14
Feb-09
Oct-09
Feb-10
Oct-10
Feb-11
Oct-11
Jun-12
Jun-13
Jun-14
Jun-09
Jun-10
Jun-11
2012 2013 2014 HY
Newcastle Richardsbay Indonesia Pet Coke Domestic Coal Imported Coal Alternative Fuel Other Fuel
Source: Bloomberg, Barclays Research Source: Bloomberg, Barclays Research
Raw material costs – mining closures and depleting gypsum resources

remain a concern
With ongoing mine closures in Odisha and Jharkhand, the availability of raw-material
(limestone) could come under pressure. The local governments of Jharkhand and Odisha
have served notices to ACC Limited to suspend limestone mining operations at the
Chaibasa (Jharkhand) and Bargarh (Odhisa) cement plants. ACC has complied with the
aforesaid order and suspended limestone mining operations at the respective locations.
Although we believe the ongoing mining standoff could be resolved within the next 4-6
weeks given the precedent of Odhisa (where Tata Steel and SAIL were allowed to restart
mining), similar suspensions in other states or prolonging of the current standoff could
create a shortfall of raw material in the market. Although we do not expect the sharp
upward trend in raw material prices, as seen in the last few years, to continue, we do expect
raw material prices to increase in-line with or marginally ahead of inflationary trends.
15 December 2014 36
FIGURE 73 FIGURE 74
Cost of key inputs such as gypsum… ….as well as limestone have increased in recent years
450 700 160
400
600 150
350
300 500 140
250 400 130

200
300 120
150
200 110
100
50 100 100
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Whole Sale Price Index Iron ore
Whole Sale Price Index Gypsum Whole Sale Price Index Limestone (rhs)
• Constrained gypsum supplies: Along with limestone and fly ash, gypsum is a key input
material for cement production. India’s current reserves of gypsum stand at ~125mt and
are primarily concentrated in Rajasthan. As domestic reserves deplete, prices continue
to see an upward trend. Based on our estimates, without the discovery of new deposits,
domestic reserves may be completely absorbed by end-2022. Rajasthan accounts for
c99% of the total production of gypsum in India, but it is in the North, thus
transportation costs are prohibitive for cement producers located elsewhere.
15 December 2014 37
VALUATIONS REFLECTIVE OF GROWTH EXPECTATIONS
Can the rally be sustained?

Stock prices of most India cement companies have witnessed a strong rally YTD,
outperforming the BSE index by 32% (as of 11 December 2014). We attribute this rally to
expectations of a sharp revival in demand with the new government taking charge at the
centre. The Bharatiya Janata Party (BJP) manifesto had accorded top priority to the revival of
the manufacturing sector and a strong focus on urbanisation and infrastructure, all of which
bodes well for cement demand. The rally in cement stocks has come despite any significant
uptick in industry utilisation or profitability improvements, and has been supported by the
increase in replacement costs (the cost of setting up new cement plants has risen by at least
30% during the period).
FIGURE 75 FIGURE 76
India Cement – stocks have outperformed the BSE index …although we are yet to witness any major improvements in
since the start of the year… margins or volume growth
185 EBITDA-t
175 1,300
165
155 1,100
145 900
135
125 700
115 500
105
95 300
Cement Weighted Index BSE ACC Ambuja Shree Cement Ultratech
Consensus earnings upgrades likely to come with a lag

Although earnings-based valuations look expensive compared to historical levels, we
highlight that consensus estimates (Bloomberg) for the cement companies tend to
significantly lag actual earnings during inflexion periods. Industry margins have shown a
very strong correlation to utilisation levels in the past 25 years (Figure 77). We expect this to
result in a sharp uptick in profitability (EBITDA/t) once utilisation levels improve. We expect
cement price increases to outstrip cost pressures, leading to potential consensus earnings
upgrades. Our valuations build in the impact of an expected demand recovery and
increasing industry utilisations, which should translate into a strong improvement in
profitability across our coverage universe. Estimates for our coverage universe are 4-13%
above Bloomberg (FY16E). Asset-based valuations at 1.2-1.5x replacement cost still appear
reasonable to us in the context of previous upcycle multiples (stocks have traded at c2x
replacement cost). On a P/B basis, current valuations are c50% below average seen during
the last peak (FY04-07).
15 December 2014 38
FIGURE 77 FIGURE 78
Margins have shown strong correlation to utilisations Average EBITDA/t for our coverage is currently 42% below
EBITDA 1,300
Utilizations Margin
95% 25%
90%
20%
1,000
85%
15%
80%
10% 700
75%
70% 5%
65% 0% 400
FY91
FY92
FY93
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Source: Prowess, CMA, CMIE, Company data, Barclays Research estimates Source: CMA, CMIE, Company data, Barclays Research estimates
FIGURE 79 FIGURE 80
Average EV/t for large caps against replacement cost Asset-based valuations (for large caps) still below previous
upcycle multiples
US$/t
300 3.00
2007-2008
250 2.50 Avg. multiplier
was 2.1x
200 2.00
150 1.50
100 1.00
50 0.50
- -
Replacement Cost Avg. EV/t Multiplier (EV/t as a multiplier of replacement cost)

Note: Cement companies with greater than 20mt are considered large caps. Note: Cement companies with greater than 20mt are considered large caps.
Source: Datastream, Barclays Research estimates Source: Datastream, Barclays Research estimates
FIGURE 81
Large cap India Cement – current valuations are still below last peaks (average multiples)
EV/EBITDA P/B
18.0 8.0
16.0 7.0
14.0 6.0
12.0
5.0
10.0
4.0
8.0
3.0
6.0
4.0 2.0
2.0 1.0
- -
EV/EBITDA Average P/B Average

Note: Cement companies with greater than 20mt are considered large caps.
Source for both charts: Datastream, Barclays Research
15 December 2014 39
Valuation multiples for cement players at current (FY16E/FY17E) earnings expectations

look stretched (against historical traded values), in our view. However, we believe the
earnings revisions cycle would start only with a lag once we start to witness an on-ground
pickup in demand. Although we expect muted cement demand growth in FY15E, we see
multiple drivers for a strong rebound from FY16E onwards. Our valuations build in the
impact of an expected demand recovery and increasing industry utilisations, which should
translate into a strong improvement in profitability across our coverage universe. Our FY17E
EPS are c4-13% ahead of Bloomberg consensus (FY16E). Although we are yet to see any
major upgrades in earnings forecasts, we believe the earnings downgrade cycle has
bottomed out.
FIGURE 82
Sensitivity analysis – potential impact of change in realisations on profitability


Note: *For Grasim the impact shown is for a 1% change in VSF volumes and realisations.
FIGURE 83
FY16E adjusted EPS consensus estimates
Rs/share Rs/share
Rs/share
165 Ultratech 105 ACC 15 Ambuja

100 14
155
95
145 13
90
135 85 12
80 11
125
75
115 10
70
105 65 9
Jan-13
Mar-13
Jan-14
Mar-14
May-13
May-14
Nov-13
Jul-13
Jul-14
Sep-13
Sep-14
Jan-14
Mar-14
Mar-13
Jan-14
Mar-14
Jul-13
Sep-13
Jul-14
May-14
Sep-14
Jul-13
Jul-14
May-13
Sep-13
May-14
Sep-14
Nov-13
Nov-14
Nov-13
Nov-14
15 December 2014 40
FIGURE 84
India Cement – Barclays Research vs Bloomberg consensus EPS
EPS (Rs) FY16E FY17E
ACC
Consensus 72.9 91.5
Barclays 82.1 103.4
% diff with consensus 13% 13%
Ambuja
Consensus 11.3 13.1
Barclays 11.7 14.1
%diff with consensus 3.7% 7%
Shree Cement
Consensus 410.1 615.0
Barclays 441.9 581.3
%diff with consensus 8% -5%
Ultratech
%diff with consensus 7% 7%
Grasim
%diff with consensus 8% 7%

Note: Consensus data as of 11 December 2014. Source: Bloomberg, Barclays Research estimates
EV/EBITDA vs. replacement cost as a valuation methodology

Cement companies tend to be valued either on traditional earnings methodologies (such as
EV/EBITDA) or on a replacement cost basis (EV/tonne). Like any commodity business, we
believe replacement cost can serve as a useful tool to check for valuation anomalies in
terms of extreme equity price movements. Volatility in underlying cement prices can limit
the predictability of earnings for cement companies. Thus, we believe replacement cost
provides a useful tool for investors to corroborate these valuations. That said, replacement
cost cannot be used as a substitute to earnings as it does not factor in commodity cycles,
relative cost efficiencies among companies, or geographical attractiveness in a regional
market such as cement. In addition, cement in India is sold as a retail product (unlike some
developed countries (including the US) where cement is sold as a bulk commodity). A
replacement cost-based valuation is not able to capture the brand premium and importance
of supply chain infrastructure of some companies, in our view.
Our preferred valuation methodology is EV/EBITDA, given the capital-intensive nature of the
cement industry. Cement business earnings can be volatile due to the varying capital
structures, and we view EV/EBITDA as a relatively stable parameter that captures both the
operating dynamics of a business model and issues relating to capital structure and gearing.
15 December 2014 41
Summary of valuation methodology

Across our India Cement coverage universe, our price targets are generally based on 10-
year average EV/EBITDA multiples applied to our one-year forward EBITDA forecasts. We
maintain our view of northern India being the most attractive regional cement market, due
to a more balanced supply/demand setting and significant entry barriers with the tie-up of
existing limestone resources (50% of India’s resources are based in the south as compared
with 16% in the north). Thus, despite the improving outlook for the overall market, we
continue to believe northern India-based cement capacity can earn sustainably higher
profitability, justifying higher valuation premiums over peers.
• Grasim Industries: We value Grasim at Rs4,572 using a SoTP valuation and

conservatively apply a holding company discount of 25% for its 60.3% stake in
Ultratech. We value the standalone businesses (VSF and Chemicals) at a target
EV/EBITDA multiple of 5x (we conservatively apply a 30% discount to global peers)
applied to our FY16E EBITDA of Rs2,613mn (standalone). We value Grasim’s
investments in other listed companies at a 25% discount to the current market price,
consistent with our holding company approach. We expect Grasim’s holding company
discount on its 60% stake in Ultratech to narrow (currently c47% based on FY16E
EV/EBITDA) as the VSF outlook improves.
• Ultratech Cement: Our price target of Rs2,943 is based on a target EV/EBITDA multiple
of 12x applied to our FY16E EBITDA of Rs69,578mn, and implies an EV/t of US$196/t.
We use the same target multiple as for Shree Cement, which is a 20% premium to the
multiple we use for ACC and Ambuja. We believe Ultratech deserves to trade at a
premium to ACC and Ambuja given its strong growth outlook, pan-India scale, better
product and sales mix, cost leadership and strong brand recognition.
• ACC Limited: Our price target of Rs1,423 is based on a target EV/EBITDA multiple of
10x applied to our CY15E EBITDA of Rs24,696mn, and implies an EV/tonne of
US$118/t. Our valuation multiple of 10x is one standard deviation above the long-term
average (FY99 to present), which highlights the improving market outlook. Our target
multiple is at a 20% discount to the multiple we use for Ultratech and Shree given ACC's
relatively muted growth outlook and uncertainty arising from the announced global
merger between Holcim and Lafarge.
• Ambuja Cements: We value Ambuja at Rs215 using a SoTP-based methodology. We

value Ambuja's standalone cement business using an EV/EBITDA multiple of 10.0x
applied to our CY15E EBITDA estimate of Rs28,665mn. Our valuation multiple of 10x is
one standard deviation above the long-term average (FY99 to present), which highlights
the improving market outlook. We also add the value of Ambuja's attributable share of
ACC (50%) at our 12-month price target for ACC. Our price target implies an EV/tonne
of US$134/t on the consolidated capacity. Our target multiple for the standalone
cement business is at a 20% discount to the multiple we use for Ultratech and Shree
Cement, given Ambuja's relatively muted growth outlook and uncertainty arising from
the announced global merger between Holcim and Lafarge.
• Shree Cement: Our price target of Rs9,975 is based on a target EV/EBITDA multiple of
12x applied to our FY16E EBITDA of Rs26,900mn, and implies an EV/tonne of
US$219/t. Our target multiple for Shree is at a 20% premium to the multiple we use for
ACC and Ambuja. We believe Shree deserves to trade at a premium to ACC and Ambuja
given it still offers attractive exposure to the North India market, which we believe would
remain most attractive in terms of improving utilisation, consolidation and higher entry
barriers.
15 December 2014 42
FIGURE 85
ACC, Ambuja, Shree Cement, Ultratech – EV/EBITDA-based price targets
Valuation ACC Ambuja Shree Ultratech
EBITDA (Rs mn) – CY15E/FY16E 24,696 28,665 26,900 69,578

Target EV/EBITDA multiple (x) 10.0 10.0 12.0 12.0
Target EV (Rs mn) 246,961 286,651 322,795 834,941
Net debt (Rs mn) (CY15E/FY16E) (20,217) 5,167 (24,719) 28,251
Market cap (Rs mn) 267,178 425,434 347,515 806,690
No. of shares (mn) 187.7 1,977.3 34.8 274.1
Price target (Rs) 1,423 215 9,975 2,943
Capacity (mt) 34 51 23 70
Implied EV/tonne (Rs) 7,227 8,186 13,339 11,928
Rs/US$ 61 61 61 61
Implied EV/ tonne (US$) 118 134 219 196
Note: 1) ACC and Ambuja have a December year-end, Shree Cement has a June year-end and Ultratech has a March
year-end. ** For Ambuja, implied EV/t based on consolidated cement capacity assuming the proposed group
restructuring goes through.
FIGURE 86
Grasim – SOTP valuation (incl. 25% discount for stake in Ultratech)
Particulars Rs mn Rs/share
A Ultratech
Barclays price target 2,943
Grasim's stake 60.3%
Holding co. discount 25.0%
Implied value 364,771 3,972
B Standalone business
FY15E EBITDA 2,175
FY16E EBITDA 2,613
Multiple (EV/EBITDA) (x) 5.0
Implied value 13,064 142
C Investments
Idea Cellular 28,388
Larsen & Toubro 9,421
Aditya Birla Nuvo (ABNL) 5,774
Hindalco 8,290
Applied discount 25.0%
Less: Standalone net debt FY16E -3,190 -35

Market value 419,930 4,572
Shares outstanding (mn) 92
Price target (Rs) 4,572
15 December 2014 43
FIGURE 87 FIGURE 88
ACC – EV/EBITDA (x) Ambuja – EV/EBITDA (x)
14.0 16.0
12.0 14.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0 4.0
2.0 2.0
- -
EV/EBITDA (forward) Average EV/EBITDA (forward) Average
FIGURE 89 FIGURE 90
Shree – EV/EBITDA trend (x) Ultratech – EV/EBITDA (x)
16.0 18.0
14.0 16.0
12.0 14.0
10.0 12.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0 2.0
- -
EV/EBITDA (forward) Average EV/EBITDA (forward) Average
FIGURE 91
Grasim – EV/EBITDA (x)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
EV/EBITDA (forward) Average

Source for all charts on this page: Datastream, Barclays Research
15 December 2014 44
FIGURE 92
India Cement – regional valuation comparison
Price Price Potential (%) P/E (x) EV/EBITDA (x) P/BV (x) RoE EPS CAGR EV/t ($/t)
Upside/Do
Company Ticker Rating Currency Price Target FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY14-17E FY15E FY16E FY17E
wnside
ACC ACC.NS EW INR 1,428.35 1,423.00 -0.4 20.7 17.4 13.8 12.3 10.0 8.2 3.2 3.0 2.8 16.1 18.0 18.0 29.1 135 119 119
Ambuja ABUJ.NS UW INR 223.05 215.00 -3.6 25.1 19.0 15.8 13.4 10.7 8.9 3.4 3.2 2.9 13.6 16.7 16.7 15.9 171 146 146
Shree Cement SHCM.NS OW INR 8,974.60 9,975.00 11.1 26.5 20.3 15.4 13.3 10.5 8.0 5.2 4.1 3.2 19.8 20.3 20.9 37.0 241 215 215
Ultratech ULTC.NS OW INR 2,484.45 2,943.00 18.5 27.6 17.5 13.1 15.7 10.2 7.6 3.5 3.0 2.5 12.7 17.1 19.0 32.9 190 172 172
Anhui Conch 0914.HK OW HKD 27.10 32.85 21.2 9.8 8.9 8.8 6.2 5.3 4.8 1.8 1.5 1.3 21.0 19.7 19.7 11.4 94 87 79
China National Building 3323.HK UW HKD 7.40 6.10 -17.5 5.5 5.1 4.7 7.2 7.1 6.8 0.8 0.7 0.6 16.5 15.5 15.5 5.4 60 58 59
China Resources Cement 1313.HK EW HKD 5.09 5.91 16.1 8.1 7.8 7.5 6.3 5.6 4.9 1.2 1.1 0.9 16.5 15.1 15.1 9.8 84 73 60
China Shanshui Cement 0691.HK EW HKD 3.25 2.80 -13.9 9.8 9.4 9.0 8.4 7.9 7.5 0.7 0.7 0.7 8.1 8.0 8.0 - 7.2 36 33 32
Notes: Prices as of the market close on 11 December 2014. For ACC and Ambuja, FY14 and FY15 represent years ending December 2013 and December 2014, respectively. For Shree Cement, FY14 and FY15 represent years
ending June 2014 and June 2015, respectively.
Stock ratings: OW: Overweight; EW: Equal Weight; UW: Underweight. Industry views: Pos: Positive; Neu: Neutral; Neg: Negative. Asia ex-Japan Metals & Mining industry view = Neutral. For full disclosures on each covered
company, including details of our company-specific valuation methodology and risks, please refer to http://publicresearch.barcap.com.
15 December 2014 45
KEY INDUSTRY RISKS

Pricing power: While we expect industry supply discipline to sustain (see pages 32-33),
pricing discipline not being sustained is a key downside risk, particularly if demand does not
pick up as expected. Our sensitivity analysis shows that every 1% change in realisations
could impact profitability for our coverage universe by 4-6%.
FIGURE 93
Sensitivity analysis – potential impact of change in realisations on profitability

*For Grasim the impact shown is for a 1% change in VSF realisations.
Demand: We expect a sharp rebound in demand from FY16 onwards. However, if demand
were to remain tepid on the back of slow execution of the announced infrastructure
projects or a slower-than-expected recovery in the South, this could mean downside risk to
our estimates. Our sensitivity analysis shows that every 1% change in volumes could impact
profitability of our coverage universe by 1-3%.
FIGURE 94
Sensitivity analysis – potential impact of change in volumes on profitability

*For Grasim the impact shown is for a 1% change in VSF volumes.
Freight costs: Typically, freight accounts for 25% of the costs for a cement plant. We
assume that cost pressures will subside and forecast a 2-5% CAGR in freight costs over
FY15-17 for our coverage universe, particularly on the back of decrease in global crude
prices. However, if crude prices were to rebound sharply, impacting the diesel prices in
India, this could mean downside side risk to our estimates, and vice versa.
Commodity prices: Power and fuel costs account for 20-25% for cement making costs and
are linked to international thermal coal prices. For Shree Cement in particular, we believe
lower availability of pet coke is a key downside risk to profitability.
Regulatory delays for expansion plans: All cement companies under our coverage have
expansion plans. Any delays in terms of the approval process for capacities under
construction would mean downside risks to our estimates.
15 December 2014 46
REGIONAL ANALYSIS
Western region – pricing power to benefit local players

We expect the western region of India to benefit from limited capacity expansion and an
uptick in demand. Following a period of muted growth, we forecast demand to rebound
from FY16E onwards, driven by infrastructure projects. Even with increased supply coming
from South India, we remain positive on the pricing outlook.
Large projects and a new Demand outlook: After witnessing a period of strong growth between FY08-12 (CAGR of
Maharashtra government c11%), demand from the region stagnated between FY12-14, mainly due to slowing growth
focused on infrastructure in the Maharasthra housing market. We expect demand from the region to rebound from
creation are drivers for strong FY16E onwards on the back of: 1) new demand from large infrastructure projects such as
demand (we estimate demand the DFC, and the western railway elevated corridor project; 2) the BJP assuming government
CAGR of 7.1% over FY15-17E) in Maharashtra; the BJP has traditionally accorded a high priority to manufacturing growth
in its manifesto; we believe the party’s focus on the creation of physical infrastructure and
new urban centres bodes well for a recovery in cement demand over the medium term; and
3) an expected revival in the urban housing sector, as the infrastructure upcycle returns.
Driven by these factors, we expect demand to rebound strongly to c.83mt in FY17E (CAGR
of 7.1% between FY15-17E).
Prices to remain strong, with Supply outlook: The majority of new capacity in the region is located in the Chhattisgarh
limited local expansion and belt, and is geared towards servicing demand from the eastern region (i.e. the states of West
longer lead distances for Bengal and North-east states which are in supply deficit). Excluding the Chhattisgarh-based
supplies from South India projects, we see limited capacity expansion (based on announced projects). However, as
overcapacity persists in the South, new capacities coming on stream in the Gulbarga cluster
(Karnataka, South India), will likely direct supply towards Maharashtra-based demand
centres (especially Mumbai). The Western region is therefore expected to be well supplied
(with supplies from the Chanderia-Rajasthan and Gulbarga-Karnataka belt, as highlighted in
Figure 95). A substantial share of its demand is likely to be met by imports (from
neighbouring regions), and supply from the South would have long lead distances, which
tend to lead to higher landed prices. We therefore expect support for both western region
cement prices and the profitability of locally based cement manufacturers.
FIGURE 95
Western region – understanding cement movement dynamics
Chanderia
• Excluding expansions in Bilaspur belt,
limited capacity expansions have
been announced.
• Capacities in Bilaspur are geared
towards servicing eastern markets.
• Risk of splill-over from of supply
from South (Gulbarga cluster)
Bilaspur
Imports
Gulbarga
Nalgonda Exports
Cement clusters
Key demand
centers
15 December 2014 47
FIGURE 96
Western region – supply and demand model
West FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Year-end capacity (mt) 74 84 86 99 98 103 112 115
Production 68 70 75 77 83 83 87 94
Demand (mt) 55 61 66 68 69 72 77 83
Demand growth (%) 17% 11% 9% 2% 1% 5% 7% 8%
Region Based Utilisation 91% 83% 87% 78% 85% 80% 77% 81%
Source: CMA, company data, Barclays Research estimates
We expect a sharp rise in capacity additions in FY15E. However, the majority of this new
capacity is directed towards servicing the eastern region. We therefore do not see the
western region suffering from oversupply and expect prices to remain firm.
FIGURE 97 FIGURE 98
Western region – market share split (FY14) Top players will likely maintain market share (ex-Jaypee)
90.0%
Jaiprakash Gujarat
17% Ambuja 80.0%
15% 70.0%
60.0%
Century 50.0%
Textiles 40.0%
UltraTech 9% 30.0%
24%
20.0%
ACC 10.0%
8% 0.0%
FY14 Market FY15 Market FY16 Market FY17 Market
Prism
Others UltraTech Jaiprakash Gujarat Ambuja
cement
21%
6% Century Textiles ACC Prism cement
Source: CMA, Company data, Barclays Research Note: Forecasts are based on various data including CMA and CMIE.
Source: CMA, CMIE, company data, Barclays Research
15 December 2014 48
Eastern region – strong demand outlook; new capacity

additions in Chhattisgarh may create oversupply from FY16E
The North-eastern region has consistently been in cement deficit over several years. Local
demand has exceeded local supply, with shortfalls met through cement purchases from
other parts of India (primarily Chhattisgarh). We expect major policy and fiscal initiatives to
catalyse infrastructure and industrial development in the region, driving up the demand for
cement. However, with c20-25mt of new capacity coming on stream over FY16-FY18E (in
Chhattisgarh), we expect prices/profitability to come under pressure.
Demand growth to remain Demand outlook: Unlike the rest of India, cement demand has remained strong in the
muted in FY15 due to floods in Eastern region in recent years, driven by increased government spending in Bihar and
North eastern states. An uptick Orissa. However, we expect demand to remain muted in the current fiscal year (FY15E) due
from FY16E onwards is to floods in the North-eastern states, which severely impacted manufacturing and
expected, driven by infrastructure activities. However, we do expect this region to be a key growth driver for
investments in road and hydro cement in the medium term from: 1) large-scale investments in road infrastructure; the
power projects central government has announced a Rs30bn package for the North-eastern states union
under National Highways Authority of India (NHAI); 2) even with its strong growth, per
capita consumption of cement is one of the lowest in India; and 3) increased demand from
the fast-tracking of hydro power projects in the region. Based on the above factors, we
expect demand from the region to grow at a CAGR of 6.3% between FY15-FY17E to c44mt.
Prices may be pressured from Supply outlook: Cement units in the North-east benefit from tax breaks and subsidies
FY16E onwards with c20-25mt ranging from excise, sales tax, income tax exemptions, and transport subsidies to incentivize
of new capacity coming on industrial growth in the region. The Government had previously approved a package of
stream in Chhattisgarh fiscal incentives and other concessions for the North-east region, under the ‘North East
Industrial and Investment Policy, 2007’. Driven by growing demand and government
incentives, a host of new capacities has been established. However, most of these are
standalone grinding units. Cement firms have established clinker capacities in the
Chhattisgarh belt, aimed at serving the eastern markets. Despite split units rationalizing
costs, similar to western markets, large lead distances lead to higher cement prices, which
tend to hold in the absence of major capacity additions. However, we believe prices may
come under pressure from FY16E onwards, with an estimated c20-25mt of new capacity
coming on stream in Chhattisgarh (between FY16-FY18E).
FIGURE 99
Eastern region’s per capita consumption of cement (FY14) is one of the lowest in India…
Kg/capita
200
150
100
50
Bihar / Jharkhand WB Assam Meghalaya / other India
NE
15 December 2014 49
FIGURE 100 FIGURE 101

…especially with higher cement demand from rural areas States such as Bihar and UP together comprised c40% of
driven by the shift to pucca houses total completed houses under IAY in FY13
% 45%
80.0
70.0 40%
60.0 35%
13%
50.0 30%
25% 14% 12% 13%
40.0
30.0 20%
20.0 15%
26%
10.0 10% 19% 20% 19%
0.0 5%
Bihar Chattisgarh Jharkhand Orissa WB
0%
% of semi-pucca and kutcha houses FY10 FY11 FY12 FY13
All-India average
Bihar UP
Source: National Sample Survey Office (NSSO), Barclays Research Source: Census, Barclays Research
FIGURE 102
A snapshot of hydro power projects in the Eastern region
Expected
Name of Project State Capacity Details
Completion
Jorethang Loop Sikkim 96MW NA FY15
Dam – 45m High, 511m long,
Teesta Low Dam-IV West Bengal 160 MW FY16
concrete gravity
Arunachal
Pare 110MW Dam : 78m High, Con.Gravity FY16
Pradesh
Bhasmey Sikkim 51MW Dam-33.2m High FY16
New Umtru Meghalaya NA NA FY16
Dam-Concrete with chute

Teesta-III Sikkim 1200MW FY16
The NDA government has fast spillway 60m high
tracked 21 key projects worth Teesta-VI Sikkim 500MW Barrage: 34.27m high FY16
over Rs1,000bn in the
Dam: Earthfill, L – 250 M
northeast to spur development. Tuirial Mizoram 60MW FY17
H – 75 M
Most of these projects are
Rangit-IV Sikkim 120MW Dam: Concrte 44m high FY17
related to hydropower, railways
and transmission lines Dam :Bichom-75m High,
Arunachal
Kameng 600MW 247.3m long. FY17
Pradesh
Tenga – 25.0 High, 103m long.
Arunachal Dam –116m High, concrete

Subansiri Lower 2000MW FY18
Pradesh gravity
Arunachal Dam –116m High, concrete

Subansiri Lower 2000MW FY18
Pradesh gravity
Tashiding Sikkim 97MW Barrage-EL 917m FY18
Dam-35m High,
Dikchu Sikkim 96MW FY18
Concrete Gravity
Dam-47m High,
Rangit-II Sikkim 66MW FY18
Concrete Gravity
Rongnichu Sikkim 96MW Barrage-14m High FY18
Source: CEA, Barclays Research
15 December 2014 50
FIGURE 103
Standalone grinding units coming up in the Eastern region
Capacity
Company State Expected commissioning
(mt)
Toshali Cements Pvt. Ltd. Orissa 0.8 Sep'13
Cement Corpn. Of India Ltd. Assam 0.2 Jul'14
Ambuja Cements West Bengal 0.9 Feb'15

With the lack of limestone
resources, cement firms are ACC Jharkhand 1.5 Jun'15
establishing grinding units to
cater to the growing demand Shree Cement Bihar 2.0 Jul'15
from Eastern markets
ACC West Bengal 1.5 Mar'16
FIGURE 104
Eastern region – supply and demand model
East FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Year-end capacity (mt) 24.2 24.2 28.1 28.8 33.5 37.7 41.7 41.7
Production 14.0 16.1 17.5 19.1 19.0 22.0 23.6 26.2
Demand (mt) 28.2 31.0 32.3 35.1 37.4 39.2 41.3 44.3
Demand growth (%) 17% 10% 4% 9% 7% 5% 5% 7%
Region based Utilisation(%) 58% 67% 62% 66% 57% 58% 57% 63%

Eastern region – market share split (FY14) Market shares for the Top 6 companies are expected to fall;
Ultratech has major expansion plans in the region
80.0%
Orissa ACC
Cement 13% UltraTech 70.0%
16% 11%
60.0%
50.0%
Gujarat 40.0%
Ambuja 30.0%
8%
20.0%
Lafarge
17% Cement 10.0%
Manu Co. 0.0%
Ltd. FY14 Market FY15 Market FY16 Market FY17 Market
8% Share Share Share Share
Others Lafarge Orissa Cement
27% ACC UltraTech
Gujarat Ambuja Cement Manu Co. Ltd.
15 December 2014 51
Northern region – the most attractive cement market

We reiterate our view that the North is the most attractive regional cement market in India.
Our view stems from three key reasons: 1) higher utilisation rates from a more balanced
supply-demand setting (c83% utilisation by FY17E compared with c73.6% for pan-India);
2) significant entry barriers for new capacities due to a limited availability of limestone
resources; and 3) a highly consolidated market with the Top 5 companies having a
combined c62% market share as at end-FY14. We expect the favourable supply-demand
scenario in the North region to translate into higher profits for North-based capacities.
Large infrastructure projects Demand outlook: Major infrastructure demand arising from the Delhi Mumbai Industrial
(like DFC and DMIC) coming Corridor (DMIC) and accompanying Dedicated Freight Corridor (DFC), coupled with hydro
up or likely be revived; we projects, will be the key driver for cement growth in North India, in our view. The DFC alone
expect cement demand to would require c27mt of cement on our estimates, spread over FY15 to FY19, with initial
rebound sharply in North. DFC benefits to North India-based companies. Furthermore, hydro power projects in the North
alone should generate demand with a generation capacity of 8,470MW are either under construction or are at the planning
of 19mt for North players stage. Most of these are based in Jammu and Kashmir and in Uttarakhand. We expect these
stalled projects to be revived, and projects under construction to be expedited as the new
government focuses on bridging the power deficit gap. This could significantly boost
cement demand as hydro power projects can generate anywhere between 1mt and 10mt of
annual cement demand, depending on the height of the walls. Similarly, irrigation projects
valued at Rs265bn (source: CMIE) are under construction in the North with Uttar Pradesh
leading the way. We estimate that the construction of a 200km canal requires as much as
4mt of cement, which if spread over three years could potentially boost annual cement
demand by 6% in the North.
Increasing entry barriers, Supply outlook: A lower concentration of limestone resources in the North (16% compared
higher consolidation and with 50% for the South) is creating barriers to entry for new cement plants in the North.
utilisation levels all lead to Thus, we believe that greenfield capacity additions there will significantly decrease. We
higher pricing power for expect c5mt of average annual capacity addition during FY15-17E vs c8mt of average
cement products in the North. annual capacity addition over FY10-14. Longer lead distances from cement clusters to key
Thus, we believe the North- markets in the North (>500km compared with <400 km for the South), the hilly terrain and
based cement products can higher transportation costs (an 35% increase from FY12 to FY14) are creating further entry
sustain a higher level of barriers, restricting excess supply arriving from the southern/western cement clusters. We
profitability, which should also expect further consolidation in North India, where market concentration is already
justify higher valuation higher than the rest of India. The Top 5 players (Ultratech, Shree Cement, Ambuja,
premiums over peers Jaiprakash and ACC) command 62% of market by capacity vs. 47% for pan-India (as at end-
FY14). Increasing entry barriers, higher consolidation and utilisation levels should lead to
higher pricing power for the cement producers in the North, in our view.
FIGURE 107
Favourable demand/supply should translate into higher utilisations for North based cement manufacturers
120.0 utilization rates 85%

mt
100.0
80%
80.0
60.0 75%
40.0
70%
20.0
- 65%
Year-end capacity (mt) Production Region based Utilisation(%)
15 December 2014 52
FIGURE 108
Status of hydro power projects in North India
Project Location Capacity Start Commissioning Issues
Pancheswar Uttarakhand 6 X 540 1997 - • No progress, Govts of India and Nepal have yet
to sign the final agreement for the project
Pakal Dul Jammu & Kashmir 4X250 2014 2020 • No issues; consortium of Patel Engineering,
BHEL and Limak Holding was the lowest
bidder in Feb-2014
Vyasi Uttarakhand 120 1986 - • 35% of work completed. Slow progress; power
house work awarded to National Projects
Construction Corp.
Lakhwar Uttarakhand 300 1986 - • Initial stages; not much progress. No major
issues
Chenab Ratle Jammu & Kashmir 4X205 + 30 2012 2018 • Construction is in initial stages with not much
progress made
Parbati Stage II Himachal Pradesh 4X200 2002 2016-17 • No progress; expected to slip. Difficult geology
is an issue. Construction affected due to cavity
treatment issues and protests by locals
demanding employment
• Cash issues with M/S Patel and M/S Coastal
Projects
• Challenges due to difficult geology
Tapovan Vishnugad Uttarakhand 4X130 2004 2017 • Little progress; likely to slip
• Contract for dam construction terminated in
July 2012, post which flash floods in June 2013
further delayed implementation
• Limited progress has been made since then.
• Contract for HRT package was terminated in
January 2014; yet to be re-awarded
Sawalkot Phase II Jammu & Kashmir 2X225 2006 - • No progress; DPR for the project has been
submitted by JSEB to CEA
Kishanganga Hydel Jammu & Kashmir 3 X 110 2009 2016-17 • Law and order issues being faced; protests by
locals demanding employment with NHPC
Sawalkot Phase I Jammu & Kashmir 6X225 + 56 1996 - • No progress, DPR for the project has been
submitted by JSEB to CEA
Source: CIE, CMIE, Barclays Research

Uttar Pradesh leads the way in irrigation projects Cement requirements* for a dam and a canal
Project State Project Value Canal Walls Dam Wall
Sarayu Nahar Project UP Rs 73 bn Length 200 km Height 500 ft

Indira Gandhi Nahar Phase I I Project Rajasthan 69 Height 8 m Length 2 km
Width 4 m Width 5 m
Renuka Dam Project HP 36
Concrete Concrete
6400000 m3 1524000 m
3
Bansagar Canal Project UP 31 Volume Volume
Mewat Feeder Canal Project Haryana 7 Proportion of
Cement in 80%
Kanhar Irrigation Project UP 7 Concrete
Song River Dam Project Uttarakhand 6 Cement
Cement Volume 5120000 m3 1219200 m
3
Ravi Tawi Lift Irrigation Project J&K 6 Volume

Cement Cement
Kandi Canal Stage -II Project Punjab 5 14.08 mt 3.35 mt
Requirement Requirement
Source: CMIE, Barclays Research * Based on given specifications.
Source: CMIE, Barclays Research
15 December 2014 53

High entry barriers to set up new capacities as North has just Longer lead distance (>500km) to key northern markets,
16% limestone resources (FY14) limits supply from other regions
Distance from Cement Clusters (km)
North
16% Key Markets Chanderia Satna Chandrapur Bilaspur
Rajasthan MP Maharashtra Chattisgarh
West Srinagar 1335 1564 2038 1987
South 21%
50% Chandigarh 811 971 1445 1394
Shimla 914 1073 1548 1496
NCR 578 734 1208 1157
Jaipur 309 759 1092 1093
Udaipur 124 866 980 1276
East Allahabad 908 181 793 513
13%
Moradabad 733 628 1236 1051
Agra 548 522 978 945
Lucknow 798 312 942 711
Source: Indian Bureau of Mines, Barclays Research *Highlighted points represent closest cluster
FIGURE 113
Northern region – supply and demand model
North FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Year-end capacity (mt) 71.5 81.0 84.5 90.6 95.4 103.0 106.4 110.9
Production 54.2 58.4 63.9 67.5 68.6 75.9 83.8 92.5

Demand (mt) 57.7 60.0 66.2 70.1 72.8 79.0 86.1 94.1
Demand growth (%) 9% 4% 10% 6% 4% 9% 9% 9%
Region based Utilisation(%) 76% 72% 76% 74% 72% 74% 79% 83%

The Top 5 companies dominate market share (FY14) … … and will likely continue to dominate in FY17E
UltraTech
15% 80%
70%
Others
31% 60%
Shree 50%
Cement 40%
14%
30%
20%
10%
Binani 0%
7% Gujarat FY14 FY15E FY16E FY17E
Ambuja
ACC Jaiprakash UltraTech Shree Cement Gujarat Ambuja
13%
9% 11% Jaiprakash ACC Binani
15 December 2014 54
Southern region – demand scenario improving but

overcapacity persists
We expect a revival in demand in the Southern region, driven by the creation of new states
and increasing utilisation levels (to 63% by FY17E from 54% in FY14). However, we believe
that pricing power and margins for South-based cement players will remain subdued with
utilisation remaining below national levels due to continued overcapacity. Players with
exposure to the erstwhile Andhra market could benefit from an expected uptick in demand.
Strong rebound in demand Demand outlook: The political turmoil in Andhra Pradesh (AP) possibly led to a cumulative
expected from the new states demand loss of c4mt in South India over FY10-14, in our view. However, we expect demand
of Telangana and Seemandhra to rebound strongly (8% CAGR over FY14-17E vs. a 1% CAGR over FY10-14E), driven by the
special economic status accorded to Telangana (a newly created state post its bifurcation
from AP) and a revival in the real estate market, along with more hiring in the IT services
sector. With the end of political unrest, both states are now expected to make investments
in infrastructure projects, housing and urban development. We estimate the additional
demand from Telangana alone is likely to generate 5-6mt of incremental demand for
southern cement producers. Also, as the global economy gradually improves, we expect
increased demand for commercial real estate at urban centres in the South, which should
create higher demand for cement. Our research on Indian IT Services recently highlighted
that demand trends for the sector continues to be positive with an improving US macro
outlook (see India IT Services: Takeaways from 3QCY14 ISG conference call, October 2014).
Recent management commentaries from South-based cement companies also have
signalled an improvement.
Pricing power and margins for Supply outlook: We expect capacity additions to slow in the South in response to large
South-based cement players overcapacity, with a 1.9% CAGR in cement supply additions over FY14-17E – significantly
likely to remain subdued lower than the 9.4% CAGR over FY09-14. In contrast to the North, the region is
characterised by a large number of relatively smaller players. The top five players have a
combined market share of c50% (as at end-FY14). During the last few years, a host of new
players setting up cement plants created significant overcapacity in the region (c43% of
new capacity coming from new entrants). New capacity expansion has mostly been located
in Gulbarga and the Karnataka belt, aimed at the Southern and Western markets. Overall,
we expect utilisation levels to improve (to 63% in FY17E) but to remain below the national
average.
FIGURE 116
South India cement demand outlook: Andhra Pradesh – getting back on its feet
Mt
85.0
a ) Organic growth b) De-growth in AP d) Demand from
c) Restoration of old projects in AP creation of new state
75.0
6.0
65.0 6.0 (a)

6.3 3.6 3.6 75.3
(d)
55.0 (b) (c)
(a) 59.7
57.0
45.0
FY10 South FY 14 South FY 17 South
Demand Demand Demand
Source: CMA, CMIE, Company data, Barclays Research estimates
15 December 2014 55
FIGURE 117
Historical demand from divided states has grown at a faster rate than in the rest of the country
CAGR FY00-FY05 Cement Demand CAGR

Cumulative demand for divided states - Additional demand due
9.1% to split spreads over 4-5 years
8.4%
mts 1.53x
8.0%
475.5
500.0
5.7% 400.0
309.7
1.75x
5.0% 300.0
200.0 147.8
84.7
100.0
2.0% -
UP MP / Chhattisgarh Bihar / Jharkhand Divided States India excluding divided states
State Growth India ex. divided states Pre Div (FY94-99) Post Div (FY00-05)
FIGURE 118
Incentive packages for AP and Telangana announced by the central government under the AP Re-organisation Act, 2014
Fiscal measures inviting investments - Central government to: Beneficiary State
Tax incentives, to the successor States, to promote industrialisation and economic growth. Both
Support the programmes for the development of backward areas, including expansion of physical infrastructure. Both
Financial support for the creation of essential facilities in the new capital of Andhra Pradesh including the Raj Bhawan,
AP
High Court, Government Secretariat, Legislative Assembly, Legislative Council, and such other essential infrastructure.
Facilitate the creation of a new capital of Andhra Pradesh, if considered necessary, by denotifying degraded forest land. AP
Infrastructure plans
A new major port at Duggirajupatnam to be developed in Andhra Pradesh to be completed in phases with Phase I by
AP
end-2018.
SAIL to examine the feasibility of establishing an integrated steel plant in Khammam district of Telangana. Telangana
IOC or HPCL to examine the feasibility of establishing a greenfield crude oil refinery and petrochemical complex in
AP
Andhra Pradesh.
To examine the feasibility of establishing a Vizag-Chennai industrial corridor along the lines of Delhi-Mumbai
Both
Industrial Corridor.
Expanding the existing Visakhapatnam, Vijayawada and Tirupati airports. Both
NTPC shall examine the feasibility of establishing a 4000 MW power facility in Telangana. Telangana
Indian Railways shall examine establishing a new railway zone in Andhra Pradesh. AP
NHAI shall take necessary steps to improve road connectivity in the backward regions of Telangana. Telangana
The Indian Railways to set up a Rail Coach Factory in Telangana and improve rail connectivity in the State. Telangana
Establishing of rapid rail and road connectivity from the new capital of Andhra Pradesh to Hyderabad. AP
Investments in educational institutions
Establishing institutions of national importance in the 12th and 13th Plan periods in Andhra Pradesh. This would
AP
include one IIT, one NIT, one IIM, one IISER, one Central University, one Agricultural University and one IIIT.
Establishing one AIIMS-type Super-Specialty Hospitalcum-Teaching Institution in Andhra Pradesh. AP
To establish a Tribal university each in the State of Andhra Pradesh and in the State of Telangana. Telangana
A Horticulture university shall be established in Telangana Telangana
Source: Planning Commission, GOI, Barclays Research
15 December 2014 56
FIGURE 119
Companies with higher exposure to AP may benefit from a rebound in demand (FY14)
Split of Andhra Pradesh Cement Capacity (FY14) % Capacity
Others India in AP
6.7 Cements 120%
Sagar Cement 12% 7.1
2.4 100%
13%
4% 100%
Penna
Dalmia + 7.0
Orient 13% 80%
5.5
10%
60%
46%
My Home 33%
3.2 Zuari 40%
6% 5.7 24%
10%
Ramco 20% 10%
3.6
6% 0%
Rain JP UltraTech
4.0 5.0 5.6 India Ramco Dalmia + Ultratech Sagar
7% 9% 10% Cements Orient
Note: JP refers to Jaiprakash Associates. Source: CMA, Company data, Barclays Research
Source: CMA, Company data, Barclays Research
FIGURE 120
Southern region – supply and demand model
South FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Year-end capacity (mt) 104 112 121 130 132 134 136 140
Production 64 65 67 72 72 77 84 88
Demand (mt) 57 56 56 59 60 64 70 75
Demand growth (%) 6% -2% 1% 5% 1% 7% 9% 8%
Region Based Utilisation 62% 59% 56% 55% 54% 58% 61% 63%

Top five players control 50% of the market (FY14) With fewer expansion projects planned, % share of the
overall capacity for firms is expected to remain unchanged
Chettinad 70%
Cements
11% 60%
UltraTech 50%
Others 11%
38% 40%
30%
Madras
Cements 20%
10%
10%
0%
FY14 FY15E FY16E FY17E
Kesoram Dalmia India
Cements Chettinad Cements UltraTech Madras Cements
Industries Cements ACC India Cements ACC Dalmia Cements
5% 7% 8% 10%
Kesoram Industries
15 December 2014 57
Companies
COMPANIES
15 December 2014 58
GRASIM (GRASIM IN; OW; PT INR4,572; +36%): ‘CEMENT’ LINING

We initiate coverage of Grasim, the world’s third largest viscose staple fibre (VSF)
GRASIM IN / GRAS.NS producer, with an Overweight rating and a 12-month SoTP-based price target of
Stock Rating Rs4,572. While we believe the VSF business will continue to face headwinds, we expect
OVERWEIGHT Grasim’s holding company discount on its 60.3% stake in Ultratech to narrow, which
should support the stock. The stock-to-use ratio for cotton is at an all-time high of
Industry View
c90% (end-FY14). We believe this, coupled with policy changes in China, could keep
NEUTRAL
margins in check for the next one-two years. However, with large expansion projects
Price Target nearing completion, we expect strong volume growth and free cash flow for Grasim as
INR 4572.00 the standalone business enters the cash monetisation phase. Also, with new capacity
Price (11-Dec-2014) coming on stream, we expect the product mix to improve, which should provide support
INR 3359.85 to realisations in a weak pricing environment. However, we expect the standalone
Potential Upside/Downside entity’s contribution (c13% of our SoTP-based price target) to remain small, in contrast
+36% to Ultratech (c81% of Grasim’s overall operating profit in FY14). We expect Ultratech’s
strong earnings growth outlook to drive consolidated profitability (see Figure 138).
Outlook for VSF remains weak…: We expect VSF realisations to remain muted over the
next one to two years. The outlook for the global VSF market remains weak on: 1) a change
in China’s cotton procurement policy; and 2) existing global overcapacity in VSF, which is
keeping utilisation levels low. VSF prices declined sharply in 1H FY15 and we expect this
weakness to persist near term. We see a higher stock-to-use cotton ratio as a key risk.
…but expect cash flows to pick up as Grasim enters cash monetization phase: In FY15,
Grasim is scheduled to complete two major expansion projects for the VSF and chemicals
businesses, following which its VSF capacity would increase to 498kt (from 334kt in FY13).
We expect this to improve Grasim’s product mix, and believe a greater share of speciality
products (VSF) should provide support to realisations in a weak environment. With major
expansions now nearly behind it, we expect Grasim’s free cash flow to improve from FY16E.
Cement subsidiary to drive consolidated profits: We expect Ultratech to post strong

earnings growth – we forecast an EBITDA CAGR of c30% from FY14-17E – on an improving
demand outlook for cement. We also expect Ultratech, which contributed c81% of Grasim’s
overall operating profit in FY14, to remain the key driver of profitability – we forecast it to
contribute c90% of operating profit in FY17.
Valuation: We value Grasim at Rs4,572 using a SoTP valuation and conservatively apply a
holding company discount of 25% for its 60.3% stake in Ultratech. We value the standalone
businesses (VSF and Chemicals) at a target EV/EBITDA multiple of 5x (we conservatively
apply a 30% discount to global peers (based on Bloomberg estimates)), applied to our
FY16E EBITDA. We value Grasim’s investments in other listed companies at a 25% discount
to the current market price, consistent with our holding company approach. We expect
Grasim’s holding company discount on its stake in Ultratech to narrow (currently c47%
based on FY16E EV/EBITDA) as VSF outlook improves.
Key risks: Key downside risks to our investment thesis and price target for Grasim include: 1)
any further sharp correction in VSF prices; 2) exposure to currency fluctuations, as Grasim has
subsidiaries and JVs around the world; 3) delays in commissioning of new capacity at Vilayat;
and 4) risks pertaining to Ultratech given Grasim’s 60% stake in the company.
Grasim Industries Ltd.(GRAS.NS): Financial and Valuation Metrics EPS INR
FY Mar 2013 2014 2015 2016 2017
EPS 294.62A 225.56A 231.80E 326.67E 422.32E

Previous EPS N/A N/A N/A N/A N/A
Consensus EPS 272.25A 225.50A 235.59E 310.22E 395.33E
P/E 12.1 15.8 15.3 10.9 8.4
Source: Barclays Research. Consensus numbers are from Thomson Reuters
15 December 2014 59
Asia ex-Japan Metals & Mining Industry View: NEUTRAL
Grasim Industries Ltd. (GRAS.NS) Stock Rating: OVERWEIGHT
Income statement (INRmn) 2014A 2015E 2016E 2017E CAGR Price (11-Dec-2014) INR 3,359.85
Revenue 293,240 320,761 383,982 430,009 13.6% Price Target INR 4,572.00
EBITDA 49,144 53,374 77,557 98,439 26.1% Why Overweight? While we believe the VSF business
EBIT 40,335 44,027 66,901 86,856 29.1% will continue to face headwinds in the medium term,
Pre-tax income 35,862 38,542 60,045 79,999 30.7% we expect Grasim’s holding company discount on its
Net income 28,514 30,062 44,433 58,399 27.0% 60% stake in Ultratech to narrow. We also expect
EPS (reported) (INR) 225.56 231.80 326.67 422.32 23.3% Ultratech’s strong earnings growth outlook to drive
consolidated profitability.
EPS (adj) (INR) 225.56 231.80 326.67 422.32 23.3%
Diluted shares (mn) 91.8 91.8 91.8 91.8 0.0%
Upside case INR 5,316.00
DPS (INR) 26.38 23.18 32.67 42.23 17.0%
Our upside case assumes 5% higher cement volumes
(Rs470), 5% higher VSF realizations (Rs9), and a
Margin and return data Average
further 5% reduction in the holding company
EBITDA margin (%) 16.8 16.6 20.2 22.9 19.1 discount from our base case assumption (Rs265).
EBIT margin (%) 13.8 13.7 17.4 20.2 16.3
Pre-tax margin (%) 12.2 12.0 15.6 18.6 14.6 Downside case INR 3,829.00
Net margin (%) 9.7 9.4 11.6 13.6 11.1
Our downside case assumes 5% lower cement
ROIC (%) 10.4 10.2 13.2 14.7 12.1 volumes (Rs471), 5% lower VSF realizations (Rs8),
ROE (%) 13.8 13.1 16.8 18.7 15.6 and a 5% increase in the holding company discount
Payout ratio (%) 11.7 10.0 10.0 10.0 10.4 from our base case assumption (Rs264).
Balance sheet and cash flow (INRmn) CAGR Upside/Downside scenarios

Tangible fixed assets 218,222 221,209 246,160 268,536 7.2%
Intangible fixed assets N/A N/A N/A N/A N/A
Cash and equivalents 53,342 62,190 92,167 144,611 39.4%
Total assets 477,466 525,592 589,546 663,599 11.6%
Short and long-term debt 91,420 91,420 91,420 91,420 0.0%
Other long-term liabilities 30,263 30,263 30,263 30,263 0.0%
Total liabilities 261,322 281,855 304,856 325,009 7.5%
Net debt/(funds) 38,078 29,230 -747 -53,191 N/A
Shareholders' equity 216,144 243,737 284,690 338,590 16.1%
Change in working capital 814 -2,395 1,884 5,415 88.0%
Cash flow from operations 35,566 58,868 68,567 86,397 34.4%
Capital expenditure -23,968 -47,550 -35,110 -29,453 N/A
Free cash flow 11,598 11,318 33,457 56,943 70.0%
Valuation and leverage metrics Average

P/E (reported) (x) 14.9 14.5 10.3 8.0 11.9 POINT® Quantitative Equity Scores
EV/EBITDA (x) 7.1 6.3 4.0 2.6 5.0 Value
FCF yield (%) 3.8 3.7 10.8 18.5 9.2
P/BV (x) 1.4 1.3 1.1 0.9 1.2
Dividend yield (%) 0.8 0.7 1.0 1.3 0.9 Quality
Net debt/capital (%) 8.0 5.6 -0.1 -8.0 1.3 N/A
Selected operating metrics Sentiment

VSF Volumes (kt) 367 403 423 448
VSF Realizations (Rs/t) (INR) 128,458.4 128,458.4 131,027.5 133,648.1
Low High
Source: POINT®. The scores are valid as of the date of this
report and are independent of the fundamental analysts'
views. To view the latest scores, please go to the equity
company page on Barclays Live.
Source: Company data, Barclays Research

Note: FY End Mar
15 December 2014 60
Investment case
VSF business faces headwinds
We believe the outlook for the global VSF market remains weak, on the back of: 1) a change
in China’s cotton procurement policy; and 2) existing global overcapacity (in VSF), which is
keeping utilisation levels low. VSF prices declined sharply in 1H FY15 and we expect this
weakness to persist over the next one to two years. We see a higher stock-to-use ratio as a
key risk, which could push prices down further.
FIGURE 123
Cotton market supply demand model – production still outstrips demand; stocks at record high levels
30,000
Kt kt
25,000
120,000 105%
20,000
95%
15,000 100,000 85%
10,000 75%
5,000 80,000 65%
0 55%
-5,000 60,000 45%
-10,000 35%
-15,000 40,000 25%
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
-20,000
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15E
Ending Stocks Stocks use %
Source: USDA, Barclays Research estimates
Change in China policy

In the past few years, China’s cotton programme has supported global cotton prices.
However, the shift in policy by China from 2014 onwards, from one of price support to
income support (China has scrapped its scheme to stockpile the commodity and is trialling
direct subsidies for farmers instead) led to an abrupt fall in world cotton prices. As a result,
the global stock-to-use ratio has trended up, reaching c95% by end-FY14. We believe this,
coupled with tightening of imports in China, is likely to keep spot prices in check in the
medium term.
FIGURE 23
China’s policy shift has caused an abrupt fall in world cotton prices
100
Cot 'A' Index
90
80
70
60
Jun-13
Jun-14
Jan-13
Mar-13
Apr-13
Jan-14
Mar-14
Apr-14
May-13
Sep-13
May-14
Sep-14
Jul-13
Jul-14
Nov-12
Nov-13
Aug-13
Oct-13
Aug-14
Oct-14
Dec-12
Feb-13
Dec-13
Feb-14
Source: Cotlook 'A' Index, Barclays Research
15 December 2014 61
Overcapacity persists
VSF manufacturers have rapidly expanded capacity in the past few years, especially in
China, where capacity additions have outpaced the rest of the world, leading to significant
overcapacity in the system. With large surplus capacity, exports from China have risen
sharply, negatively impacting global prices. Although we expect the pace of capacity
additions to slow in the next two to three years, the existing overcapacity could hinder any
major upward correction in VSF prices. China accounted for 60-65% of global VSF capacity
at end-2013 on our estimates.
FIGURE 124
VSF: global capacity and production trends
mt
7.0 84%
6.0
5.0 80%
4.0
76%
3.0
2.0 72%
1.0
- 68%
2010 2011 2012 2013 2014E 2015E
Global Capacity Production Utilization
VSF and Chemicals businesses entering a cash flow monetization phase

According to management, Grasim is in the final stages of completing its expansion drives
for both the VSF and chemicals businesses. Following the commissioning of new projects,
we expect the product mix to improve in both verticals. For VSF, we believe the greenfield
project in Vilayat, Gujarat should ensure a greater share of speciality products, providing
support to realisations in a weak pricing environment. Likewise, in chemicals, the expansion
of downstream products should ensure improved realisations for the segment. With major
expansion projects nearly behind it, we expect Grasim’s capex to be lower and cash flow to
improve from FY16E onwards (for the standalone entity).
FIGURE 125
We expect VSF volumes to pick up as new capacity comes on stream in FY15; improved product mix with greater share of
specialty products
Kt
500
450
120
400
350 36
498
300
250 370
334
200 270
221
150
FY00 FY07 FY13 Brownfield expansion FY14 Greenfield project at FY15E
at Harihar, Karnataka Vilayat in Gujarat
15 December 2014 62
FIGURE 126
Grasim sources c80% of its raw material (pulp and caustic) for VSF from captive sources, via JVs around the world
Domsjo pulp
plant JV
China, Hubei
Fibre plant (77
K TPA) JV
Canada
3 pulp plant JVs South East Asia
2 Fibre plants of
Group Co. of
India 366kt
•4 Fibre plants
•1 Pulp plant
JVs
•2 Caustic soda plant
Own or Group Cos
Cement to be key profit driver for consolidated entity

Grasim has a presence in the cement sector through Ultratech Cement, its 60.3%-owned
subsidiary. Grasim’s earnings contribution from cement has dwarfed the contribution from
the VSF segment (c81% of operating profit for FY14 from cement). We expect this trend to
continue and forecast Ultratech to record an EBITDA CAGR of c30% between FY14 and
FY17 on an improving demand outlook for cement in India. We expect Ultratech to remain
the key driver of overall profitability for the consolidated entity. For further details on
Ultratech, see pages 69-79 of the report.

Grasim: FY14 gross sales by segment Grasim: FY14 EBIT by segment
350 40.0 Rs Bn
Rs Bn
300 35.0
30.0
250
25.0
200 242
20.0 29.5
150
15.0
100 12 10.0
1.6
50 5.0
66
4.8
- 0.0
Fibre & Pulp Chemicals Cement Others Eliminations FY14 Gross Fibre & Pulp Chemicals Cement Others Eliminations FY14 EBIT
Sales
15 December 2014 63
Valuation: we value Grasim at Rs4,572/share

We value Grasim at Rs4,572 using a sum-of-the-parts (SOTP) valuation and conservatively
apply a holding company discount of 25% for its 60.3% stake in Ultratech. We value the
standalone businesses (VSF and Chemicals) at a target EV/EBITDA multiple of 5x applied to
our FY16E EBITDA of Rs2,613mn (standalone). We conservatively use a 5x multiple for the
standalone business, which is at a 30% discount to its global peers (based on Bloomberg
estimates). We value Grasim’s investments in other listed companies at a 25% discount to
the current market price, consistent with our holding company approach. We expect
Grasim’s holding company discount on its 60% stake in Ultratech to narrow (currently
c47% based on FY16E EV/EBITDA) as the VSF outlook improves.
FIGURE 129
Grasim: Sum-of-the-parts valuation (including 25% discount for stake in Ultratech)
Particulars Rs mn Rs/share
A Ultratech
Barclays PT 2,943
Grasim's stake 60.3%
Holding co. discount 25.0%
Implied value 364,771 3,972
B Standalone business
FY15E EBITDA 2,175
FY16E EBITDA 2,613
Multiple (EV/EBITDA) (x) 5.0
C Investments
Idea Cellular 28,388
Larsen & Toubro 9,421
Aditya Birla Nuvo (ABNL) 5,774
Hindalco 8,290
Applied discount 25.0%
Less: Standalone net debt FY16E -3,190 -35

Market value 419,930 4,572
Shares outstanding (mn) 92
FIGURE 130
Grasim – Key assumptions for our estimates
VSF capacity (kt) 377.8 498.0 498.0 498.0
VSF utilisations (%) 95.6% 81.0% 85.0% 90.0%
Average VSF realisations (Rs/t) 128,458 128,458 131,028 133,648

15 December 2014 64

Grasim – EV/EBITDA Grasim Cement – P/E
10.0 18.0
9.0 16.0
8.0 14.0
7.0 12.0
6.0
10.0
5.0
8.0
4.0
6.0
3.0
2.0 4.0
1.0 2.0
- -
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
EV/EBITDA (forward) Average PE (forward) Average
Source: Reuters, Company data, Barclays Research Source: Reuters, Company data, Barclays Research
FIGURE 133
Grasim – P/B
6.0
5.0
4.0
3.0
2.0
1.0
P/B Average
Source: Reuters, Company data, Barclays Research
FIGURE 134
We expect stronger operating cash flows to fund capex needs over FY15/16E
Rs Bn
100
80
60
40
20
0
FY12 FY13 FY14 FY15E FY16E FY17E
(20)
(40)
OCF FCF Capex
15 December 2014 65
Risks
Key downside risks to our investment thesis and price target for Grasim include:
• Any further sharp correction in VSF prices: China currently holds a substantial share of
global cotton stock. The Chinese government’s recent policy aimed at expedited
liquidation of this cotton stock could put further pressure on global cotton/VSF prices.
• Exposure to currency fluctuations: Grasim has subsidiaries and JVs in other countries
and regions. Thus, the company’s earnings are sensitive to currency fluctuations.
• Delays in commissioning of new capacity at Vilayat: Grasim is nearing the completion

of a major capacity expansion programme for the VSF segment. Our valuation factors in
the impact of an expected uptick in volumes as this new capacity comes on stream. Any
delays in the ramp-up could impact our volume and realisation estimates for FY15-16.
Risks pertaining to Ultratech would also be applicable for Grasim given Grasim’s 60% stake
in the company. These include:
• A slower-than-expected recovery in cement demand.
• Any sharp correction in cement prices or change in pricing/production discipline

among larger players.
• Balance sheet stress with inorganic expansion.
• CCI penalty.
Company background
Grasim is among the world’s largest producers of VSF. It has VSF plants in Nagda in Madhya
Pradesh, Kharach in Gujarat and Harihar in Karnataka, which have an aggregate capacity of
c455kt and command a c8% share of global capacity (as at end-2013). The VSF business is
highly integrated with captive sourcing of pulp (c75-80%) through Grasim’s international
JVs. The company also has a presence in the Chemicals segment, which is essentially a
backward integration of VSF. Grasim is the second largest producer of caustic soda in India
by volume. It also holds a 60.3% stake in Ultratech, India’s largest cement producer with
capacity of 62mtpa (as at end-2Q FY14).
FIGURE 135
Grasim – Key financial snapshot
Key Operating Metrics FY11 FY12 FY13 FY14 FY15E FY16E FY17E
VSF volumes (kt) 305 307 336 367 403 423 448
VSF realisations (Rs/t) 136,673 139,855 133,078 128,458 128,458 131,028 133,648
EBITDA margin (%) 23.4% 22.1% 21.2% 16.8% 16.6% 20.2% 22.9%
15 December 2014 66

Consolidated VSF and wood pulp EBIT and margin trend Consolidated chemicals segment EBIT and margin trend
Rs Mn Rs Mn % of
4,000 % of 35% 800 Revenue 30%
Revenue
3,500 30% 700
25%
3,000 600
25%
20%
2,500 500
20%
2,000 400 15%
15%
1,500 300
10%
10%
1,000 200
5% 5%
500 100
0 0% 0 0%
EBIT EBIT Margin EBIT EBIT Margin

FIGURE 138
Grasim: Organisation structure (as at end-2Q FY14)
Grasim
Ultratech
Pulp, Fibre & Allied Chemicals Others
(60.26%)
VSF Int. Pulp Int.

Chemicals
455Kt VSF JV 70kt Pulp JVs Grasim Bhiwani
Domestic International Textiles * 18 Mn. Mtr.
(100%)
Nagda Birla Jingwei $ Caustic
162kt 77K TPA, (31%) 452Kt
Idea Cellular #
3mt (4.76%)
Grey cement
(UAE,
Kharach 60.2mt + White
AV Cell $ 126K Bangladesh, Sri
Nagda cement .6mt +
128kt TPA, (45%) Lanka and
270kt 102 RMC plants BCML $
Bahrain)
(26%)
AV Nackawic $
Harihar 189K TPA,
87kt (45%)
Vilayat
Domsjo $ 255K 182kt
Vilayat 77kt TPA, (33.33%)
commissioned
43kt (Under AV Terrace Bay
$ 280K TPA, Epoxy
Commissioning) 51kt
(40%)
Note: *Subsidiary; # Associate company; $ Joint venture.

15 December 2014 67
Viscose staple fibre

Viscose staple fibre (VSF) is a man-made fibre used as a substitute for cotton. It is used in a
wide variety of textile and non-woven applications, such as wipes, personal hygiene
products, and medical pads.
Man-made fibres substituting cotton: Worldwide usage of VSF has increased in the past
10-15 years on the back of growing populations and rising income levels. Furthermore,
there appears limited potential to increase existing cotton supply due to limited acreage
area. We expect the global cotton planted area to remain within the historical band (due to
greater competition from other cash crops) in the coming years. With limited cotton supply,
man-made fibres (such as viscose) are likely to cater to the new demand in our view.
FIGURE 139
Global trends: Limited potential to increase cotton supply increases demand for man-made fibres such as VSF
K Hectares mt
40
45,000 Cotton acreage expected to remain
within narrow band 35
40,000 30 4.7 5.3 10.5
5.8
3.3 4.4 6.6
25
35,000
20 2.8
30,000 15
10
25,000
5
20,000 0
FY84
FY86
FY88
FY90
FY92
FY94
FY96
FY98
FY00
FY02
FY04
FY06
FY08
FY10
FY12
FY14
2000 2005 2010 2011 2012 2013e 2015e 2020e

Cotton supply Man made fiber
Source: Company data, Lenzing estimates, Barclays Research

Grasim is a leading player in VSF, controlling c8% of total …and a similar share of overall global product, which stood
global capacity of c5.2 mt (as at end-2013)… at c4.43mt (as at end-2013)
Lenzing Lenzing
18% 20%
Others Others
34% 33%
Fulida
9% Fulida
9%
Thai Rayon
Thai Rayon 2%
3% Grasim
8% Sateri
Sateri Grasim
4%
4% 8%
Indo Bharat Aoyang Indo Bharat
(Aditya Birla Aoyang
(Aditya Birla 6%
Helon Tangshan Helon Tangshan 6%
Co.) Co.)
4% 5% 9% 4% 5% 9%
15 December 2014 68
ULTRATECH CEMENT LIMITED (UTCEM IN; OW; PT INR2,943; +18%): STRONG

GROWTH TRAJECTORY
We initiate coverage of Ultratech Cement with an Overweight rating and a 12-month
UTCEM IN / ULTC.NS EV/EBITDA-based price target of Rs2,943. Ultratech is India’s largest cement
Stock Rating manufacturer by capacity, and we expect it to be a key beneficiary of the expected uptick
OVERWEIGHT in demand. Ultratech has a strong growth pipeline with c12mt of new capacity scheduled
Industry View to come on stream between FY14-16E. We believe Ultratech’s pan-India presence and
NEUTRAL substantial scale in all four regions could be a key differentiator. We view Ultratech as the
most profitable cement manufacturer in our India coverage universe, owing to its better
Price Target
product and trade mix as well as its cost-saving initiatives. While any large international,
INR 2943.00
inorganic pursuits could be an overhang on the stock, we believe Ultratech offers
Price (11-Dec-2014)
attractive exposure to the expected recovery in India’s cement sector due to its strong
INR 2484.45
earnings growth trajectory – we forecast an EBITDA CAGR of 30% over FY14-17E.
+18% Strong growth, pan-India presence and higher profitability: Ultratech is in the process of
expanding its India capacity to 66.2mt (currently 60.2mt) by mid-2015. We believe the new
capacity is coming on stream at an opportune time, as cement demand rebounds. We also
believe Ultratech’s pan-India presence should partially protect it from regional volatility in
cement prices and should enable it to cater to any uptick in demand across the country,
while keeping lead distances in check. We believe the company remains one of India’s most
profitable cement manufacturers, driven by: 1) a better product and trade mix; 2) its cost-
saving initiatives (greater share of captive power); and 3) strong brand premium.
Potential international acquisition could be stock overhang: According to media reports

(Business Standard and Economic Times, 15 Oct 2014, Ultratech may be interested in bidding for
assets being divested in Brazil and the Philippines by Lafarge and Holcim. This information is
unconfirmed by the company. The said assets have a capacity of c7.1mt and we believe their EV
could be cUS$1.2-1.5bn based on recent transaction values and replacement cost trends. Any
such large international inorganic expansion could create an overhang on Ultratech, in our view.
However, we believe it has the balance sheet strength to absorb such an outlay. Even if such an
acquisition were to be entirely debt funded, the leverage ratios could remain comfortable (net
debt/equity could increase to 0.73x from 0.26x). We also think Ultratech would be unlikely to put
in an aggressive bid given the improving outlook for the India market and potential acquisition
targets that could emerge in India from the Holcim-Lafarge merger. Also, competition for the
international assets could be high, given the potential presence of private equity bidders.
Valuation: Our PT of Rs2,943 is based on a 12x EV/EBITDA applied to our FY16E EBITDA,
and implies an EV/t of US$196/t. We use the same target multiple as for Shree Cement,
which is a 20% premium to the multiple we use for ACC and Ambuja. We believe Ultratech
deserves to trade at a premium to ACC and Ambuja given its strong growth outlook, pan-
India scale, better product and sales mix, cost leadership and strong brand recognition.
Key risks: Key downside risks to our investment thesis and price target for Ultratech include:
1) lower-than-expected utilisation and cement realisations; 2) any potential delays in the
commissioning of new capacity; and 3) aggressive bids for inorganic expansion.
Ultratech Cement Ltd.(ULTC.NS): Financial and Valuation Metrics EPS INR

FY Mar 2013 2014 2015 2016 2017
EPS 97.69A 80.48A 89.87E 141.67E 189.12E

Previous EPS N/A N/A N/A N/A N/A
P/E 25.4 30.9 27.6 17.5 13.1
15 December 2014 69
Ultratech Cement Ltd. (ULTC.NS) Stock Rating: OVERWEIGHT
EBITDA 40,348 46,658 69,578 88,644 30.0% Why Overweight? Ultratech is India’s largest cement
EBIT 32,186 38,683 58,964 77,548 34.1% manufacturer (by capacity), and we expect it to be a
Pre-tax income 28,576 35,289 55,570 74,154 37.4% key beneficiary of the expected uptick in demand. The
Net income 22,060 24,635 38,832 51,840 32.9% company has a strong growth pipeline. Ultratech’s
EPS (reported) (INR) 80.48 89.87 141.67 189.12 32.9% pan-India presence and substantial scale in all four
regions could be a key differentiator, in our view.
EPS (adj) (INR) 80.48 89.87 141.67 189.12 32.9%
DPS (INR) 8.53 9.53 15.02 20.05 32.9%
Our upside case assumes 5% higher cement volumes
(Rs348), and 2% higher cement realizations (Rs256).
EBITDA margin (%) 18.8 19.8 23.7 26.5 22.2
Downside case INR 2,339.00
EBIT margin (%) 15.0 16.4 20.1 23.2 18.7
Our downside case assumes 5% lower cement
Pre-tax margin (%) 13.3 15.0 18.9 22.2 17.4
volumes (Rs348), and 2% lower cement realizations
Net margin (%) 10.3 10.5 13.2 15.5 12.4
(Rs256).
ROIC (%) 9.1 8.8 12.4 14.4 11.2
ROE (%) 12.8 12.7 17.1 19.0 15.4
Upside/Downside scenarios
Payout ratio (%) 10.6 10.6 10.6 10.6 10.6
Balance sheet and cash flow (INRmn) CAGR

Intangible fixed assets 0 0 0 0 N/A
Total assets 321,928 368,392 414,247 467,061 13.2%
Short and long-term debt 70,053 86,031 86,031 86,031 7.1%
Net debt/(funds) 29,275 49,983 28,251 -7,197 N/A
Change in working capital 9,878 -30,578 -4,647 -815 N/A
Free cash flow -1,539 25,708 26,508 41,824 N/A POINT® Quantitative Equity Scores
Value
N/A
P/E (reported) (x) 30.9 27.6 17.5 13.1 22.3
EV/EBITDA (x) 17.6 15.7 10.2 7.6 12.8 Quality
FCF yield (%) -0.2 3.8 3.9 6.1 3.4
N/A
P/BV (x) 4.0 3.5 3.0 2.5 3.2
Dividend yield (%) 0.3 0.4 0.6 0.8 0.5 Sentiment
Net debt/capital (%) 9.1 13.6 6.8 -1.5 7.0
Selected operating metrics

Domestic Sales (mt) - Including clinker 43 49 56 58 Low High
EBITDA/t (INR) 937.7 960.4 1,239.4 1,536.7 Source: POINT®. The scores are valid as of the date of this

Note: FY End Mar
15 December 2014 70
Investment case
Capacity expansion to drive volume growth
We expect Ultratech to be a key beneficiary of the expected uptick in cement demand. The
company plans to ramp up its India capacity to 66.2mt (currently 60.2mt) by mid-2015.
This includes: 1) brownfield expansion of 2.79mt of clinker capacity and 1.1mt of grinding
capacity at Jamul (Chattisgarh); and 2) greenfield grinding capacity in the eastern part of
the country. We believe this new capacity comes at an opportune time, as demand for
cement is rebounding; we expect a sharp recovery from FY16 onwards. Also, internationally,
the company is adding a grinding unit in Bahrain, taking its overall capacity to 70mt by end-
FY16E.
FIGURE 142
Ultratech – Domestic capacity growth outlook
70.0 mt
65.0 2.9
3.1
60.0 1.4
4.8
55.0 66.2
1.6 60.2
1.45
50.0 54.0
50.9
48.8
45.0
FY12 FY13 Rajashree, Jharsuguda, FY14 Jaypee Rajashree, Current Grinding units Shambhupura FY16E
Karnataka (G) Odisha (G) Acquisition Karnataka (G) Capacity in East (Rajasthan)
Capacity (mt) Expansions (mt)
Note: (G) represent grinding units

FIGURE 143
Ultratech – expansion plans (FY14-16E)
India Overseas Total
Current capacity 60.2 3.0 63.2
Projects under implementation
Grinding units in East to support already commissioned 3.1 3.1
clinker capacity in Raipur
Brown field expansion of clinker unit at Shambhupura 2.9 2.9
(Rajasthan), with greenfield grinding unit
Bahrain Grinding unit 0.6 0.6
Expansion 6.0 0.6 6.6
Final capacity by end-FY16E 66.2 3.6 69.8
Pan-India scale and regional diversification are key differentiators

We see Ultratech’s pan-India presence and substantial capacity in each of the four regions
as a key differentiating factor for the company. In our view, a well diversified regional mix
should partially protect the company from volatility in cement prices, and should also
enable Ultratech to cater to any uptick in demand requirements across the country. A
regional presence enables the company to meet the requirements of local units; keeping
lead distances in check (i.e., shorter distance from end-markets). Ultratech plans to add
15 December 2014 71
c3.1mt of new capacity in the eastern region of India, which currently lacks sufficient
cement supply – it plans to add new grinding units to support the clinkerization unit in
Raipur and 2.9mt in Rajasthan. We view this as a positive, as we expect prices to remain
firm in East India in the medium term (until FY16).

Ultratech – geographical distribution of capacity, FY14 Ultratech – geographical distribution of capacity, FY16E
East East
7% 11%
North North
26% 25%
West
41%
West
41%
South
South 23%
26%
Source: Company data, Barclays Research Source: Company data, Barclays Research estimates
Profitability driven by higher realisations and cost control measures

We view Ultratech as the most profitable cement manufacturer in our India coverage
universe. We believe the company’s higher EBITDA/t is driven by: 1) its better product and
trade mix; 2) cost-saving initiatives such as a greater share of captive and power and WHRS;
and 3) higher realisations driven by brand premium.
FIGURE 146
India cement – FY14 EBITDA/t comparison
Rs / t
1400
1200
1000
800
600
400
200
0
Source: Company data, Bloomberg, Barclays Research
• Better product and trade mix: Ultratech derives higher realisations due to the greater
share of value-added products in its sales mix, such as white cement/putty and ready
mix concrete (RMC). In addition, a higher proportion of the company’s sales come from
retail clients (c65%) as opposed to institutional clients (c35%) – retail channel sales
translate into higher realisations. The company has one white cement unit, one wall care
putty unit, and more than 100 RMC units (as at end-FY14). White cement and putty
15 December 2014 72
capacity totalled 1.36 mt at end-FY14. Ultratech and JK Cement are the only two
national-level producers of white cement in India.
• Increasing share of captive power: Ultratech has gradually built up its captive power
capacity, with the share of captive power increasing from c47% of the company’s
overall power requirement in FY09 to c83% in FY14 (709MW). The company has also
invested in waste heat recovery systems (WHRS). In the most recent quarter (2Q FY15),
the company added a new 6.5MW WHRS at its plant in Awarpur, Maharashtra, although
Ultratech remains primarily reliant on coal. The company has also focused on increasing
the use of pet coke and alternative fuels. During FY14, pet coke consumption in
Ultratech’s kilns reached an all-time high of c50%.

Ultratech’s share of captive power has increased steadily …although the company is still reliant on coal (as at FY14)
over the past six years...
Solar Diesel Wind

WHRS 0.11% 1.29% 0.07%
0.39%
46.6%
77.8% 81.1% 80.0% 81.1% 82.7%
53.4%
22.2% 18.9% 20.0% 18.9% 17.3%
FY09 FY10 FY11 FY12 FY13 FY14 Steam

Purchased Own Generation 98.14%
FIGURE 149
Ultratech: Improving efficiency levels in cement production
Kwh /T of Cement
85
83
83 82
81 81
81
79
79
77
75
FY09 FY10 FY11 FY12 FY13 FY14
Consumption of electricity per unit of grey cement production (Kwh /T of Cement)
15 December 2014 73
Turnaround at acquired Jaypee units

In September 2013, Ultratech announced the acquisition of the Gujarat-based units of
Jaypee Cement (4.8mt capacity). The deal also included a 57.5MW captive thermal power
plant, a jetty and lime stone reserves with a mine life of 90 years. We view the acquisition as
a positive as: 1) the acquired units should enable Ultratech to meet the demand
requirements in the Gujarat and Mumbai markets more efficiently – Ultratech’s existing
Gujarat-based plants were already operating at c95% utilisation; the acquired capacity
should address the gap in the regional footprint; 2) we expect a turnaround in profitability
of the acquired units with improved utilisation rates (currently operating at c50%), and
higher realisations (due to Ultratech’s brand); and 3) we view the deal valuation, at
US$130/t, as attractive given the acquisition also included a captive power plant, sizeable
land (potential for future capacity expansion) and large limestone reserves. Also, the
company stated that it expects synergy gains of Rs3-4bn with realignment of clinker
movements, as well as potential gains from increased costal movement.
FIGURE 150
Acquisition of Jaypee Cement units in Gujarat – snapshot of plant locations
GU Wanakbori
Cement: 2.4 mt
IU Kutch
Clinker: 3.6 mt
Cement: 2.4 mt
UTCL – Gujarat
Cement Works
(6.4 mt)
UTCL - Jafarabad
Cement Works
(0.5 mt)
UTCL - Magdalla
GU (0.7 mt)
Acquired Units
Ultratech units
End Market
We are positive on the turnaround potential for the acquired units. Ultratech management
had stated that the units currently sell c65% of their cement through the non‐trade
segment, which is priced at a discount to the price in the trade segment. With c70% of its
sales coming from the trade segment, Ultratech has stated that it plans to reverse the mix.
Furthermore, the location of the Gujarat plants near ports should allow the company to
service its coastal units in Cochin, Mangalore and Mumbai, as well as in Sri Lanka, which we
would expect to improve the logistics costs and utilisation of the acquired cement units.
Additionally, carry forward losses of INR3.5bn are available for offset (for tax savings)
following the acquisition of the cement units. The acquired cement units’ EBITDA/t at the
time of the acquisition was Rs250/t, which appears low in comparison to the EBITDA/t of
Ultratech’s existing cement plants in Gujarat of cRs800/t. Management has stated that it
expects the deal to be EPS accretive in the third year, based on current market conditions.
15 December 2014 74
Potential international acquisition could be an overhang on the stock

According to media reports (including Business Standard and Economic Times, 15 October
2014), Ultratech may be planning to bid for assets that have been put up for divestment in
Brazil and the Philippines by Lafarge and Holcim. This information is unconfirmed by the
company. The assets in question have a combined capacity of c7.1mt (Figure 152). Based
on recent transaction values and replacement cost trends, we estimate the combined
enterprise value of the assets could be cUS$1.2-1.5bn. In our view, any such large inorganic
expansion in the international market would not only impact Ultratech’s leverage ratios but
would also increase its exposure to geographical risks associated with regional markets.
However, we do believe Ultratech has the required balance sheet strength to absorb such an
acquisition (assuming an outlay of US$1.5bn). We estimate the company’s net debt at end-
FY15E to be cRs49.98bn (higher than FY14 due to the recent acquisition of Jaypee’s Gujarat
units), with a net debt-to-capital ratio of 0.14x (FY15E net debt/EBITDA at 1.07x). Even if any
potential acquisition were to be entirely debt funded, we would expect the company’s leverage
ratios to remain comfortable (we estimate net debt to capital could increase to 0.38x, and net
debt/EBITDA to 3.0x assuming no EBITDA contribution in the first year from the acquired assets,
and that net debt/equity would move up to 0.73x from 0.26x (based on a US$1.5bn price).
FIGURE 151
Holcim-Lafarge plan to divest c7.1mt of capacity in Brazil and the Philippines; management of Holcim and Lafarge expect
process to be completed before 1H CY15
Luzon
Minas Gerais
Visayas
EspiritoSanto
San
Paulo
Rio de Janeiro
Mindano
Brazil Philippines
Capacity - 3.6mtpa Capacity - 3.5mtpa
Integrated plants - 3 Integrated plants - 3
Grinding stations - 2
RMX plants - 2
M&A process milestones and outlook Expected completion time
Complete filing for remaining countries/ address info requests from competition authorities Sep-14
Information Memorandum sent out to interested buyers Oct-14
Indicative bids from interested buyers received Oct-14
Admission to second round for potential buyers Nov/Dec 2014
In-depth buy-side Due Diligence (DD) and SPA negotiations Jan-15
Final bids Feb-15 to Jun-15
Source: Holcim (September 2014)
15 December 2014 75
FIGURE 152
History of Ultratech and key acquisitions
Year Transaction
2000 Incorporated on 24 August 2000 as L&T Cement Limited
2004 L&T demerges the cement subsidiary and, post-completion of an open offer by Grasim, the latter acquires a controlling stake in the
newly formed company, Ultratech.
2006 Narmada Cement Company Limited is amalgamated with Ultratech
2010 The cement business of Grasim is demerged and vested in Samruddhi Cement Limited in May 2010. Subsequently, Samruddhi
Cement Limited is amalgamated with Ultratech Cement Limited in July 2010.
2011 Ultratech Cement Middle East Investments Limited, a wholly-owned subsidiary of the company, acquires management control of
ETA Star Cement together with its operations in the UAE, Bahrain and Bangladesh.
2013 Acquires Jaiprakash Associates’ 4.8mt cement capacity in Kutch, Gujarat; the deal also includes a 57.5MW captive thermal power
plant, a jetty and limestone reserves with a mine life of 90 years.
Valuation: We value Ultratech at Rs2,943/share

Our price target for Ultratech of Rs2,943 is based on a target EV/EBITDA multiple of 12x
applied to our FY16E EBITDA of Rs69.6bn, and implies an EV/tonne of US$196/t. We use a
12x EV/EBITDA multiple (the same as Shree Cement); this is a 20% premium to the multiple
we use for ACC and Ambuja. Our valuation uses the long-term trading averages of ACC and
Ambuja as a benchmark. This is because they are the only companies under our coverage that
are large caps which have been operating for a long period; our valuation multiple is one
standard deviation above this to account for the improving market outlook. We then apply a
premium for Ultratech. We believe Ultratech deserves to trade at a premium to ACC and
Ambuja given its strong growth outlook, pan-India scale and presence, better product and
sales mix, cost leadership and strong brand recognition. Ultratech is the largest cement
manufacturer in India with capacity of 60.5mt as at end-FY14, and it has strong delivery
network across the country. We expect strong earnings growth for the company (an EBITDA
CAGR of 30% between FY14 and FY17E), driven by upcoming capacity additions and ongoing
expansion plans. Ultratech also enjoys strong brand recognition in most of the markets in
which it operates, enabling it to charge a premium.
FIGURE 153
Ultratech – EV/EBITDA-based price target
Valuation FY16E
EBITDA (Rs mn) 69,578
Target EV/EBITDA multiple (x) 12.0
Target EV (Rs mn) 834,941
Net debt (Rs mn) 28,251
Implied market cap (Rs mn) 806,690
No. of shares (mn) 274.1
Capacity (mt) 70
Implied EV/tonne (Rs) 11,928
Rs/US$ 61
Implied EV/tonne (US$) 196
FIGURE 154
Ultratech – Key assumptions
Domestic cement capacity (mt) 53.95 59.95 65.95 65.95
Utilisation (%) 75.6% 75.0% 82.0% 89.0%
Average realisations (Rs/t) 4,466 4,689 5,000 5,400
15 December 2014 76

Ultratech – EV/EBITDA Ultratech Cement – P/E
18.0 40.0
16.0 35.0
14.0 30.0
12.0 25.0
10.0
20.0
8.0
15.0
6.0
10.0
4.0
2.0 5.0
- -
FIGURE 157
Ultratech – P/B
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
P/B Average
Source for all three charts: Reuters, Company data, Barclays Research estimates
FIGURE 158
We expect FCF to rebound from FY15E as new capacity comes on stream
80.0 Rs Bn
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0 FY12 FY13 FY14 FY15E FY16E FY17E
OCF FCF Capex
15 December 2014 77
Risks
Key downside risks to our investment thesis and price target for Ultratech include:
• Slower-than-expected recovery in cement demand: We expect an uptick in demand

for cement from FY17E. However if demand does not recover as per our expectations,
the company’s utilisations levels may fall further, especially with new capacity coming
on stream.
• Any sharp correction in cement prices or change in pricing/production discipline

among larger players: A sharp correction in cement prices would negatively impact
Ultratech’s realisations and profitability, in our view. A change in production discipline
among larger players could create a scenario of oversupply, which could in turn put
pressure on cement prices.
• Delays in commissioning of new capacity: Regulatory delays in the expansion process

could limit volume growth visibility for the company, and hence pose a downside risk to
our earnings estimates.
• Balance sheet stress with inorganic expansion: Any large-scale inorganic expansion
would require the company to secure additional debt, impacting its leverage ratios.
However, we believe the current (FY14) net debt/equity at 0.17x is at a comfortable
level.
• Exposure to currency fluctuations: As at end-FY14, Ultratech had c3.6 mt of capacity

outside India and also exports a small percentage of cement. Thus, the company’s
earnings are sensitive to currency fluctuations.
• CCI penalty: The Competition Commission of India (CCI) had previously imposed a
penalty of Rs11.8bn on Ultratech for alleged “cartelisation” with other cement
manufacturing firms. In 2013, the company filed an appeal against the order before the
Competition Appellant Tribunal (COMPAT), which in turn granted a stay on the CCI
Order. However, the company was asked to pay 10% of the penalty (Rs1.2bn). Thus far,
Ultratech has made no provisions for potential cash outlay for the remaining amount. A
court decision that requires the company to pay a further penalty could impact its cash
flows. However, we believe the company’s balance sheet is strong, and that it should be
able to meet any cash requirements.
Company background
Ultratech Cement is the largest cement manufacturer in India with capacity of 62 mtpa (as
of end-September 2014). The company has a pan-India presence, with exposure in all four
regions. Ultratech enjoys strong brand recognition in most of the markets in which it
operates. In 2004, Grasim acquired Larsen & Toubro’s cement business. In 2010, Grasim’s
cement business Samruddhi Cement was merged with Ultratech, resulting in the formation
of one of the largest cement manufacturers in India. Ultratech also produces value-added
products – white cement, wall care putty and RMC, with production capacity of 0.6mt,
0.04mt and 10mn cubic metres, respectively (as at end-FY14). The company has an
international presence through an 80% stake in Dubai-based ETA Star Cement, which had
3mt of cement capacity as at end-FY14 – 2.1mtpa in the Middle East (clinker capacity of
2.3mtpa), 0.5mtpa cement grinding capacity in Bangladesh, and 0.4mtpa cement grinding
capacity in Bahrain.
15 December 2014 78
FIGURE 159
Ultratech – Key financial snapshot
Per-ton analysis (Rs) FY12 FY13 FY14 FY15E FY16E FY17E
Realisations (cement/domestic) 3,903 4,253 4,466 4,689 5,000 5,400

Adjusted EBITDA/t 993 1,148 906 919 1,176 1,450
Volumes (t) 40.7 40.7 43.0 48.6 54.9 56.6
GURE 160 FIGURE 161

Ultratech – volume trend Ultratech – realisation trend
mt y/y (%) mt y/y (%)

14.0 25.0% 5,500 25.0%
12.0 20.0% 5,000 20.0%
10.0 4,500 15.0%
15.0%
8.0 4,000 10.0%
10.0%
6.0 3,500 5.0%
5.0%
4.0 3,000 0.0%
2.0 0.0% 2,500 -5.0%
0.0 -5.0% 2,000 -10.0%
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Sales volumes y/y growth (rhs) Net Realizations y/y growth (rhs)
15 December 2014 79
ACC LIMITED (ACC IN; EW; PT INR1,423; 0%): UPGRADE TO EW ON IMPROVING

OUTLOOK
We upgrade our rating on ACC to EW from UW on the following: 1) we expect multiple
ACC IN / ACC.NS cost-saving levers and synergy benefits to reduce the profitability gap with peers; 2) the
Stock Rating current utilisation rate of 80% should provide significant scope for ACC to benefit from
EQUAL WEIGHT an expected stabilisation in demand in South India; and 3) we believe ACC’s profitability
Industry View has relatively high operating leverage to changes in cement prices. However, we expect
NEUTRAL longer-term growth to remain constrained by leverage at Holcim. Furthermore, the
Price Target announced global merger between Holcim and Lafarge creates additional uncertainty as
INR 1423.00 India’s Competition Commission may require some assets to be sold by ACC-Ambuja.
Price (11-Dec-2014) We view the current valuation, at 8.2x CY16E EV/EBITDA, as fair, and prefer Ultratech
INR 1428.35 and Shree Cement (both OW) given their better earnings and volume growth profile. We
Potential Upside/Downside make minor revisions to our estimates and price target for ACC (now Rs1,423).
0% Improving visibility on cost-saving initiatives: According to management, the various cost-
saving measures (improving fuel mix and synergy benefits) implemented by the company are
on track, the impact of which should be reflected in CY15-16E. Management has guided that
usage of pet coke should increase to 19% in CY14 (up from 11% in CY13). Improving usage of
alternative fuels and raw materials (AFR), driven by the commissioning of the Kaymore and
Wadi facilities, should drive further savings on power costs in CY16E in our view. ACC also
commissioned a WHRS boiler plant in March 2014, with output of c7.5MW (Gagal, HP).
Turnaround in South India: We expect a positive rebound in demand in the southern region
on the back of the resolution of Telengana issue, and forecast an 8.0% CAGR in cement
demand in this region over FY15-17E. With c10mt of capacity (34% of overall capacity) in
the south (as at end-CY13), we expect ACC to be a key beneficiary of any uptick.
New capacity to drive growth; long-term prospects still muted: ACC plans to add 3.5mt of
capacity, net of plant closures, over CY15. This includes an integrated plant in Chhattisgarh,
scheduled to come on stream in CY15. However, we do not expect any major capacity
expansion post-CY15 as parent group Holcim has significantly slowed its capex plans. We
expect greater focus on cash flows (and deleveraging) rather than growth.
Challenges persist: Despite the improving outlook, we believe challenges remain, including
a higher cost structure, legacy plants, and reduced availability of linkage coal. Although we
expect ACC to benefit from synergies from the merger with Ambuja and initiatives such as
increasing usage of AFRs, we expect profitability would continue to lag peers.
Revising estimates; raise PT: We make minor revisions to our estimates to reflect lower
margins and revise down our PT for ACC to Rs1,423 (from Rs1,428), while keeping our
valuation methodology unchanged (EV/EBITDA multiple of 10x applied to CY15E). Our price
target implies an EV/t of US$118/t. We believe Ambuja’s stated plans to acquire up to a 10%
additional stake in ACC over the next two years could provide support for the share price.
Key risks: To the upside: 1) a higher-than-expected rebound in cement demand and prices;
and 2) higher supply of linkage coal. To the downside: 1) further delays in synergy benefits;
and 2) a slower recovery in cement demand and prices.
ACC Limited(ACC.NS): Financial and Valuation Metrics EPS INR
FY Dec 2012 2013 2014 2015 2016
EPS 74.39A 48.03A 69.00E 82.12E 103.35E

Previous EPS 74.39A 48.03E 65.70E 81.57E N/A
P/E 19.2 29.7 20.7 17.4 13.8
15 December 2014 80
ACC Limited (ACC.NS) Stock Rating: EQUAL WEIGHT
EBITDA 14,500 20,273 24,696 28,835 25.8% Why Equal Weight? ACC’s expansion pipeline offers
EBIT 10,853 16,894 20,639 26,949 35.4% limited volume growth visibility in the near term. Even
Pre-tax income 10,336 16,894 20,639 26,949 37.6% in the long run, we believe any significant expansion
Net income 9,017 12,955 15,417 19,404 29.1% will likely be dependent on its parent’s strategy.
EPS (reported) (INR) 48.03 69.00 82.12 103.35 29.1% However, we do expect multiple cost saving levers
and synergy benefits to reduce ACC's profitability gap
EPS (adj) (INR) 48.03 69.00 82.12 103.35 29.1%
with peers.
DPS (INR) 30.00 43.10 51.29 64.55 29.1%
Our upside case assumes 5% higher volumes
(Rs68/share), 5% higher realisations (Rs244/share)
EBITDA margin (%) 13.0 16.3 18.9 20.2 17.1 and a further 5% fall in power/fuel/freight costs
EBIT margin (%) 9.7 13.6 15.8 18.8 14.5 (Rs98/share).
Pre-tax margin (%) 9.3 13.6 15.8 18.8 14.4
Net margin (%) 8.1 10.4 11.8 13.6 11.0 Downside case INR 948.00
ROIC (%) 12.1 15.6 17.4 20.2 16.3 Our downside case assumes 5% lower volumes
ROE (%) 11.9 16.1 18.0 21.0 16.7 (Rs69/share), 5% lower realisations (Rs307/share), a
Payout ratio (%) 62.5 62.5 62.5 62.5 62.5 5% increase in power/fuel/freight costs (Rs89/share)
and a further 10% cash outlay in penalty for the CCI
Balance sheet and cash flow (INRmn) CAGR order (Rs10/share).
Intangible fixed assets 0 0 0 0 N/A Upside/Downside scenarios
Total assets 121,011 126,091 132,452 142,342 5.6%
Short and long-term debt 0 0 0 0 N/A
Net debt/(funds) -25,446 -19,515 -20,217 -30,771 N/A
Change in working capital 2,172 4,377 132 -572 N/A
Free cash flow 10,417 -1,666 10,332 22,674 29.6%

P/E (reported) (x) 29.7 20.7 17.4 13.8 20.4
EV/EBITDA (x) 16.7 12.3 10.0 8.2 11.8
POINT® Quantitative Equity Scores
FCF yield (%) 3.9 -0.6 3.9 8.5 3.9
P/BV (x) 3.4 3.2 3.0 2.8 3.1 Value
Dividend yield (%) 2.1 3.0 3.6 4.5 3.3
Net debt/capital (%) -21.0 -15.5 -15.3 -21.6 -18.3
Quality
Selected operating metrics (INR) CAGR
Sales volume (mt) 23.9 25.0 26.5 28.6 6.2%
Realisation/t 4,210.5 4,564.0 4,535.0 4,625.7 3.2% Sentiment
EBITDA/t 605.9 810.7 931.7 1,007.2 18.5%
Low High

Note: FY End Dec
15 December 2014 81
Investment case
ACC could benefit from uptick in southern India demand
Over one-third of ACC’s capacity lies in the southern region of the country (as at end-2013),
which has had low utilisation levels for the past four years. This has acted as a drag on the
effective utilisation of the business. However, with the demand outlook in southern India
improving, we expect utilisation levels to improve, leading to increased profitability from the
company’s South India-based capacity.

ACC – Geographical distribution of capacity, 2009 ACC – geographical distribution of capacity, 2013
Capacities in mt Capacities in mt
South
6.4 South North
28% North 10.4 8.2
8.2 27%
34%
36%
East
4.4
West 14%
4.8 East West
21% 3.3 7.8
15% 25%
Source: Company data, Barclays Research Source: Company data, Barclays Research estimates
New capacity to drive growth; long-term prospects still muted

ACC plans to ramp up its capacity from 30.7 mt currently to 34.2 mt by end-2015, at an
estimated total cost of Rs33bn. This includes: 1) brownfield expansion of 2.79 mt clinker
capacity and 1.1 mt grinding capacity at Jamul (Chattisgarh); and 2) greenfield grinding
capacity in the eastern part of the country. The total capex will be funded through internal
accruals, according to the company. We expect this capacity to come on stream in CY15,
which should enable ACC to capture demand volume growth. However, we do not expect
any major capacity expansion post CY15E, as any significant expansion is likely to be
governed by Holcim’s strategy.
FIGURE 164
ACC – expansion plans
Capacity
Project (mtpa) Status
Jamul, Chhattisgarh 1.1 Land acquisition and equipment ordering completed.

Target completion year is CY15.
East 3.9 Environmental clearance received. Land acquisition is in
progress. Target completion year is CY15.
Tikaria, UP 1.5 Brownfield expansion. At initial stage.
Ametha 3.0 Planning/preliminary stage.
ACC capacity closure (1.5) Legacy plant closures
15 December 2014 82
Fuel cost optimisation critical to reduce costs

ACC enjoys a higher percentage of Fuel Supply Agreement (FSA) coal from Coal India than
its peers. However, ACC started facing shortages in receipt of linkage coal in 2012 due to
the government’s priority to supply coal to the power sector. Management has stated that
the company is increasingly looking at using alternative, cheaper fuels as well as optimising
its coal mix (increasing the usage of pet coke). According to management, various cost
rationalisation measures (improving fuel mix and synergy-led benefits) implemented by the
company are on track, the impact of which should be reflected in CY15-16E. The company
guided for usage of pet coke to increase to 19% (of overall fuel mix) in CY14 (up from 11%
y/y in CY13). Improving usage of alternative fuels and raw materials (AFR), driven by the
commissioning of facilities in Kaymore and Wadi, should drive further savings on power and
fuel costs in CY15E according to the company. ACC also commissioned a waste heat
recovery system (WHRS) boiler plant in March 2014, with output of c7.5MW (Gagal,
Himachal Pradesh). At 84 units/t of cement as at end-CY13, ACC has higher electricity
consumption than Shree Cement (78 units/t of cement) due to its older plants. Thus, we
believe reducing power costs is critical for the company to reduce overall costs.

ACC – linkage coal in fuel mix one of the highest in industry … offset by one of the highest electricity consumption
(CY12)… norms per ton of cement production (year-ended Mar 2013)
Pet-coke KwH/t
5% 88
E-auction 86
22% 84
82
Linkage
50% 80
78
76
Imported 74
23% ACC Ambuja Shree UltraTech Jaiprakash
JP
Cement Associates
Associates
Source: Company data, Barclays Research Source: Company annual reports (FY13, FY14), company data, Barclays Research
FIGURE 167
Holcim India (ACC+Ambuja): Improving energy cost structure through change in coal
mix and use of alternative fuels
1% 3% 3%
21% 20%
35%
Holcim targets to increase
usage of alternative fuel to 47% 47%
c15% of overall mix within two 48%
to three years
29% 30%
15%
2012 2013 2014 HY

Pet Coke Domestic Coal Imported Coal Alternative Fuel Other Fuel
15 December 2014 83
Valuation: we value ACC at Rs1,423/share

We make minor revisions to our estimates to reflect further tapering of linkage coal, which
could negatively impact margins. We thus marginally lower our 12-month price target for
ACC to Rs1,423 from Rs1,428. Our new price target is based on a target EV/EBITDA
multiple of 10x (unchanged) applied to our revised CY15E EBITDA of Rs24,696mn (ACC has
a December financial year end), and implies an EV/tonne of US$118/t (using 61 INR/USD).
Our valuation multiple of 10x is one standard deviation above the long-term average (FY99
to present), which highlights the improving market outlook. We use ACC and Ambuja as a
benchmark for the industry because they are the only companies under our coverage that
are large caps which have been operating for a long period. Our target multiple is at a 20%
discount to the multiple we use for Ultratech and Shree Cement given ACC’s relatively
muted growth outlook and uncertainty arising from the announced global merger between
Holcim and Lafarge. Despite the improving outlook for cement in the country, we believe
challenges for ACC remain, including a higher cost structure, legacy plants, and reduced
availability of linkage coal. Although we expect ACC to benefit from synergies from the
announced merger with Ambuja and initiatives such as increasing usage of AFRs, we expect
profitability would continue to lag peers.
FIGURE 168
ACC – EV/EBITDA-based price target
Valuation CY15E

Net debt (Rs mn) (20,217)
No. of shares (mn) 187.7
Capacity (mt) 34
Rs/US$ 61
FIGURE 169
ACC – Key assumptions
CY13 CY14E CY15E CY16E
Capacity (mt) 30.3 30.3 34.2 34.3

Utilisation (%) 79.0% 82.6% 77.6% 83.5%
15 December 2014 84

ACC – EV/EBITDA ACC Cement – P/E
14.0 35.0
12.0 30.0
10.0 25.0
8.0 20.0
6.0 15.0
4.0 10.0
2.0 5.0
- -
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Source: Reuters, Company data, Barclays Research estimates Source: Reuters, Company data, Barclays Research estimates
FIGURE 172
ACC – P/B
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
P/B Average
Source: Reuters, Company data, Barclays Research estimates
FIGURE 173
We expect FCF to rebound from CY15E as capex outflow subsides
Rs Bn
30.0
25.0
20.0
15.0
10.0
5.0
0.0
CY10 CY11 CY12 CY13 CY14E CY15E CY16E
-5.0
OCF FCF Capex
15 December 2014 85
Estimate revisions
FIGURE 174
Summary of revision of Barclays Research estimates (Rs mn)
CY14E - New CY14E - Previous Change in estimates (%)
Revenues EBITDA Net Profit Revenues EBITDA Net Profit Revenues EBITDA Net Profit
ACC 124,421 20,273 12,955 124,421 20,273 12,334 0.0% 0.0% 5.0%
ACC 130,653 24,696 15,417 130,653 25,222 15,315 0.0% -2.1% 0.7%
We marginally lower our CY15 estimates to factor in start-up costs associated with
commissioning of new capacity. We also expect availability of linkage coal to decline
further, which is likely to negatively impact margins. However, we do expect a strong
volume and margin uptick from CY16 onwards as new capacity is scheduled to come on
stream and the benefits from the company’s cost-saving initiatives flow in.
Company background
Established in 1936, ACC is one of the largest producers of cement in India in terms of
capacity. The company has a pan-India presence with 16 cement plants for total capacity of
c30mtpa as of end-CY13. According to the company, around 85% of sales go through
dealers (trade sales), while the rest is sold directly to end-users. ACC was among the top-
five cement manufacturers by capacity in India’s East, West and South regions as at end-
FY14.
FIGURE 175
ACC – Key financial snapshot
Per-ton analysis (Rs) CY10 CY11 CY12 CY13 CY14E CY15E CY16E
Realisations (cement) 3,585 3,938 4,296 4,210 4,564 4,535 4,626
EBITDA 864 824 911 606 811 932 1,007
Volumes (t) 21.0 23.3 24.1 23.9 25.0 26.5 28.6

ACC – Quarterly volume trend ACC – Quarterly realisations trend
mt y/y (%) 6,000 Rs/t y/y (%) 25.0%
7.0 20.0% 20.0%
5,000
6.5 15.0% 15.0%
4,000 10.0%
6.0 10.0%
5.0%
3,000
5.5 5.0% 0.0%
2,000 -5.0%
5.0 0.0%
-10.0%
4.5 -5.0% 1,000
-15.0%
4.0 -10.0% - -20.0%
Q2CY09
Q4CY09
Q2CY10
Q4CY10
Q2CY11
Q4CY11
Q2CY12
Q4CY12
Q2CY13
Q4CY13
Q2CY14
Q2CY09
Q4CY09
Q2CY10
Q4CY10
Q2CY11
Q4CY11
Q2CY12
Q4CY12
Q2CY13
Q4CY13
Q2CY14
Volume y/y growth (%) Net realisation (Rs/t) y/y
15 December 2014 86
AMBUJA CEMENTS (ACEM IN; UW; PT INR215; -4%): EXPECT RESTRUCTURING

BENFITS, BUT VALUATION LOOKS EXPENSIVE
We reiterate our Underweight rating on Ambuja Cements but raise our 12-month SoTP-
ACEM IN / ABUJ.NS based price target to Rs215 from Rs196, to reflect higher demand growth visibility in
Stock Rating the medium term. Although we expect restructuring and synergy benefits from the
UNDERWEIGHT announced merger with ACC to flow through in CY15, we believe the outlook for the
Industry View company’s volume growth remains muted in comparison to industry peers under our
NEUTRAL coverage. Additionally, Ambuja’s current valuation, at 10.7x CY15E EV/EBITDA, is near
a historical high and already factors in the expected profitability rebound in CY15E, in
Price Target
our view. We expect the proposed restructuring to be completed by 2Q CY15. Our new
INR 215.00
price target for Ambuja is based on a 10x CY15E EV/EBITDA multiple (unchanged) for
Price (11-Dec-2014)
Ambuja’s standalone business plus the value of the proposed 50.01% stake in ACC at
INR 223.05
cRs134bn.
-4% Limited near-term growth triggers: Ambuja is in the process of setting up a 4.5mtpa
cement plant in northern India (the main integrated unit is in Rajasthan, with associated
grinding units at Osara (MP) and Dadri (UP)), where cement demand remains relatively
strong. However, we estimate this is likely to come on stream only by end-2015. In 2Q
CY14, Ambuja posted a y/y decline in cement sales, against the industry trend. Similar to
ACC, we believe Ambuja’s long-term outlook is dependent on Holcim’s emerging market
and financial strategy; Holcim has reduced its capital expenditure sharply since 2009. We
believe that lack of timely capacity additions could restrict volume growth.
Uncertainty from global merger between Holcim and Lafarge; synergy benefits back-
ended: The announced global merger between Holcim and Lafarge creates additional
uncertainty as India’s Competition Commission may require some assets to be sold by ACC-
Ambuja. Also, this could lead to further curtailing of capex plans, negatively impacting both
companies’ growth outlook. We have noted previously that the proposed restructuring
between ACC and Ambuja is likely driven by Holcim’s aim to create a consolidated entity that
has a strong market share and also to drive increased management collaboration (see India
Cement: Demand recovery elusive, 8 November 2013, for details). We view the proposed
transaction as a precursor to a potential eventual full merger. Management had earlier guided
that it expects to unlock synergy benefits of US$150m (Rs8-9bn) through the restructuring
until CY16. The company now expects these to be largely back-ended towards CY16.
Revising estimates, raise PT to Rs215: Factoring in higher demand growth visibility in the
medium term, we raise our CY15E and CY16E volume and profitability estimates, now
expecting volume growth of 9.6% in CY15E and 8.7% in CY16E. We also expect profitability
to improve on improving utilisations and higher realizations. Thus, we raise our CY15E
EBITDA/t by 8.4% and, as a result, we raise our 12-month price target to Rs215 (from
Rs196), implying an EV/tonne of US$134/t (methodology unchanged).
Key risks: Upside risks to our investment case and price target for Ambuja include any
higher-than-expected rebound in cement demand and higher prices. Moreover, we do not
see a material risk to the share price if the proposed restructuring is not completed.
Ambuja Cements(ABUJ.NS): Financial and Valuation Metrics EPS INR

FY Dec 2012 2013 2014 2015 2016
EPS 8.41A 9.06A 8.87E 11.72E 14.09E

P/E 26.5 24.6 25.1 19.0 15.8
Source: Barclays Research.
Consensus numbers are from Thomson Reuters
15 December 2014 87
Ambuja Cements (ABUJ.NS) Stock Rating: UNDERWEIGHT
Income statement (INRmn) 2013A 2014E 2015E 2016E CAGR Price (11-Dec-2014) INR 223.05
Revenue 91,917 115,871 124,766 140,968 15.3% Price Target INR 215.00
EBITDA 17,609 22,737 28,665 33,810 24.3% Why Underweight? We see Ambuja Cements as
EBIT 16,585 20,856 26,542 29,707 21.4% lacking any immediate growth triggers and believe
Pre-tax income 16,166 20,125 25,812 28,976 21.5% that current valuations already factor in a strong
Net income 13,967 13,685 18,068 21,732 15.9% rebound in profitability in CY14E.
EPS (reported) (INR) 9.06 8.87 11.72 14.09 15.9%
EPS (adj) (INR) 8.90 8.87 11.72 14.09 16.6% Upside case INR 251.00
Diluted shares (mn) 1,542.2 1,542.2 1,542.2 1,542.2 0.0% Our upside case assumes 5% higher volumes
DPS (INR) 4.50 4.41 5.83 7.01 15.9% (Rs6/share), 5% higher realisations (Rs22/share) and
a 5% fall in power/fuel/freight costs (Rs8/share).
Downside case INR 174.00
EBITDA margin (%) 19.2 19.6 23.0 24.0 21.4
EBIT margin (%) 18.0 18.0 21.3 21.1 19.6 Our downside case assumes 5% lower volumes
(Rs5/share), 5% lower realisations (Rs27/share), a
Pre-tax margin (%) 17.6 17.4 20.7 20.6 19.1
5% increase in power/fuel/freight costs (Rs7/share)
Net margin (%) 15.2 11.8 14.5 15.4 14.2
and a further 10% cash outlay in penalty for the CCI
ROIC (%) 15.1 14.1 17.1 18.9 16.3 order (Rs2/share).
ROE (%) 14.8 13.6 16.7 18.5 15.9
Payout ratio (%) 49.7 49.7 49.7 49.7 49.7 Upside/Downside scenarios
Balance sheet and cash flow (INRmn) CAGR

Intangible fixed assets 0 0 0 0 N/A
Total assets 129,567 142,578 151,361 164,800 8.3%
Short and long-term debt 334 334 334 334 0.0%
Net debt/(funds) -39,955 -38,372 -38,607 -43,086 N/A
Change in working capital 1,787 -1,649 -157 -1,650 N/A
Free cash flow 8,686 6,313 10,660 17,017 25.1%
Valuation and leverage metrics Average Value
P/E (reported) (x) 24.6 25.1 19.0 15.8 21.1
EV/EBITDA (x) 17.3 13.4 10.7 8.9 12.6
FCF yield (%) 2.5 1.8 3.1 4.9 3.1 Quality
P/BV (x) 3.6 3.4 3.2 2.9 3.3
Dividend yield (%) 2.0 2.0 2.6 3.1 2.4
Net debt/capital (%) -30.8 -26.9 -25.5 -26.1 -27.4 Sentiment

Sales volume (mt) 23.3 24.1 26.4 28.7 7.3%
Realisation/t 4,244.3 4,784.0 4,700.0 4,888.0 4.8% Low High
EBITDA/t 757.1 943.1 1,084.6 1,176.9 15.8% Source: POINT®. The scores are valid as of the date of this

Note: FY End Dec
15 December 2014 88
Investment case
Longer-term volume growth dependent on Holcim’s growth strategy
Any significant expansion decision by Holcim subsidiaries requires approval from the global
Holcim board. This limits the capacity expansion visibility at both ACC and Ambuja. Apart
from domestic demand, long-term volume growth in Holcim India will be dependent on the
financial and geographic growth strategy followed by the group, in our view.
Holcim group had an aggressive expansion strategy between 2001 and 2007, which
resulted in a significant increase in its leverage. Since then, the group has focused on
financial consolidation through a combination of equity dilution, stake sales and a
slowdown in its capex programme. The group aims to save CHF1,500mn over 2012-14
according to Holcim, through extra sales generation (CHF500mn) and various cost-saving
initiatives (CHF1000mn) in different areas. We view the ongoing restructuring of the Holcim
India arm as an alignment of this strategy. The India business contributed 20% of group
EBITDA in 2013 and has been a key geography for volume growth. Hence, we believe India
assumes a significant role if the group’s savings targets are to be achieved.
FIGURE 178
Holcim Group – capacity expansion plans, 2014-16E
Capacity in mt CY14E CY15E CY16E Total
Indonesia 1.6 1.6 3.2

Bangladesh 0.7 0.7
Sri Lanka 0.6 0.6
Australia 1.1 1.1
India 2.3 2.3
Brazil 2.3 2.3
US 0.3 0.3
Total 6.3 3.9 0.3 10.5
Source: Holcim Annual Report (2013), Barclays Research
Lack of volume growth for Ambuja near term

Ambuja plans to set up a new 4.5mtpa integrated cement plant at Marwar Mundra in
Rajasthan, for which it has received environmental clearance. We expect the 4.5mtpa
capacity expansion to be commissioned only at end-2015E or in early 2016E, and estimate
this expansion could cost Rs35bn.
FIGURE 179
Ambuja Cements – expansion plans
Capacity
Project (mtpa) Status
Sankrail, West Bengal 0.8 Brownfield expansion; announced in 2011.

Marwar Mundwa, 4.5 EC clearance done, mining land acquisition in advanced
Rajasthan stages. Construction activity expected to commence in 1Q
CY16.
Rabriyawas, Rajasthan 0.8 Capacity expected to come on stream in 2015
Source: Holcim Annual Report (2013), Barclays Research estimates
We expect synergy benefits to be largely back-ended

The Holcim group has stated that it intends to set up a management panel to look into
synergy benefits from the supply chain as well as a reduction in fixed costs. Holcim and
Ambuja management have stated that they expect to unlock synergy benefits of US$150m
(Rs8-9bn) as part of the restructuring over CY16.
15 December 2014 89
Given ACC and Ambuja have been collaborating on central procurement, we believe
synergy benefits could flow in from the proposed restructuring. However, Ambuja now
expects these to be largely back-ended towards CY16.
FIGURE 180
Synergy potential as identified by management post-merger of ACC and Ambuja
US$ Mn
160
140
120
100 70-80
80
130-150
60
40
60-70
20
0
Supply Chain Optimization Fixed costs, shared services and Synergies and benefits
procurement
Ambuja-ACC restructuring in final stages

The ongoing restructuring of Holcim’s holding in ACC and Ambuja is in the final stages of
completion. According to the company, the only approval pending is from the Foreign
Investment and Promotion Board (FIPB). Ambuja has stated that it expects to complete the
process in c60 days after receiving FIPB approval.
FIGURE 181
Restructuring timeline
Event Completion date
Approval by the Boards of Ambuja and Holcim India July 24, 2013
BSE and NSE ‘No Objection’ letter September 18, 2013
Ambuja minority shareholder approval (68.5% in favour) – SEBI vote November 21, 2013
Ambuja EGM approval (90.4% in favour) November 23, 2013
High Courts and other approvals March 26, 2014
FIPB clearance (filed on 3 October 2013) Pending
Transaction backdrop
In a major proposed restructuring move initiated on 24 July 2013, Holcim (the parent
company of both Ambuja and ACC) proposed to amalgamate Holcim India (the investment
arm of Holcim, with a 9.76% stake in Ambuja and a 50.01% stake in ACC) into Ambuja.
Ambuja, in turn, proposed to acquire a 50% stake in ACC. The transaction is subject to
regulatory and shareholder approval.
The key steps in the proposed restructuring process are:
• Ambuja acquires a 24% stake in Holcim India (HIPL) for Rs35bn cash.
• Ambuja acquires HIPL by issuing shares to Holcim (7.4 shares of Holcim India for every
Ambuja share, implying 584mn new shares are issued). This would result in the
15 December 2014 90
cancellation of Holcim India’s 9.76% stake in Ambuja (implying a cancellation of 151m

shares).
• Following the cash and share swap deal, Ambuja would own 50.01% of ACC and
Holcim would have a 61.39% stake in Ambuja.
• Ambuja also proposes to acquire a further 10% stake in ACC over the next two years
(2015-16) for a maximum amount of Rs30bn, subject to shareholder approvals.
• Management expects to unlock synergy benefits of US$150m (Rs8-9bn) as part of the

restructuring through CY15/16.
• Assuming the restructuring of the Holcim group in India goes ahead, ACC would
become a direct subsidiary of Ambuja. The individual companies would retain their
brands, marketing teams and dealer networks. A common management structure is
being put in place to resolve practical difficulties.

Ambuja-ACC current structure under Holcim Ambuja-ACC proposed structure
40.79% Holcim 0.29%

Holcim
0.29%
24%
Holcim India Ambuja
9.76% 50.01%
Ambuja ACC ACC
FIGURE 184
Working of changes in Ambuja Cements shareholding
(mn)
Pre deal shares outstanding 1,544

Less: HIPL shares cancellation (9.76% of equity) 151
Add: New shares to be issues to Holcim 584
Net dilution of shares 433
Post deal shares outstanding 1,977
Shares held by Holcim pre-restructuring* 780
Pre restructuring Holcim stake* 50.6%
Shares held by Holcim post-restructuring 1,214
Post restructuring Holcim stake 61.4%
* Direct and indirect holding through HIPL
15 December 2014 91
FIGURE 185
Implied valuation of ACC in proposed restructuring
Implied valuation of ACC in the proposed restructuring Rs mn
Cash outgo for 24% stake in HIPL 35,000

Value of net shares issued to Holcim at Rs189/share 110,376
Less: Value of 9.76% stake cancelled 28,481
Market cap paid for ACC's 50.01% stake 116,895
Implied Market cap for ACC 233,323
Less: Cash balance in ACC as on CY12 29,522
Enterprise value for ACC 203,801
Capacity (In m tonnes) 30.1
Implied EV/t for acquisition of ACC's 50.01% stake (Rs/t) 6,771
Implied EV/t for acquisition of ACC's 50.01% stake (US$/t) 115
FIGURE 186
Key pro-forma consolidated financials for Ambuja Cements, assuming restructuring is
completed
Rs mn CY13 CY14E CY15E CY16E
Sales 203,611 240,292 255,419 283,990

EBITDA 32,108 43,011 53,361 62,645
PAT 23,356 28,319 36,160 45,408
Less: Minority Interest 4,500 6,464 7,693 9,682
PAT Adjusted for Minority Interest 18,857 21,854 28,467 35,725
No. of shares 1,977 1,977 1,977 1,977
Proforma consolidated EPS 9.5 11.1 14.4 18.1
Base EPS 9.1 8.9 11.7 14.1
% accretion / (dilution) 5.3% 24.6% 22.9% 28.2%
Valuation: we value Ambuja at Rs215/share

For Ambuja, we assume Holcim’s proposed restructuring goes through. We raise our 12-
month SoTP-price target to Rs215 from Rs196, reflecting higher demand growth visibility in
the medium term. We value Ambuja’s standalone cement business using a target
EV/EBITDA multiple of 10x applied to our revised CY15E EBITDA of Rs28,665mn (Ambuja
has a December financial year-end). Our valuation multiple of 10x is one standard deviation
above the long-term average (FY99 to present), which highlights the improving market
outlook. We use ACC and Ambuja as a benchmark for the industry because they are the
only companies under our coverage that are large caps which have been operating for a
long period. We also add the value of Ambuja’s attributable share of ACC (50%) at our 12-
month price target for ACC. Our valuation methodology is unchanged and our Rs215 price
target implies an EV/tonne of US$134/t on the consolidated capacity. Our target multiple
for the standalone cement business is at a 20% discount to the multiple we use for
Ultratech and Shree Cement given Ambuja’s relatively muted growth outlook and
uncertainty arising from the announced global merger between Holcim and Lafarge.
15 December 2014 92
FIGURE 187
Ambuja – SoTP-based price target
Particulars CY15E
Ambuja EBITDA (Rs mn) 28,665
Net cash / (debt) (Rs mn) 5,167
Add: value of 50.01% stake in ACC 133,616
Target market cap of Ambuja (Rs mn) (A) 425,434
No. of shares of Ambuja (mn) 1,977
Price target of Ambuja (Rs) 215
Value of ACC Stake

Price target of ACC (Rs) 1,423
No of shares of ACC (mn) 187.7
Target market cap of ACC (Rs mn) 267,178
Ambuja's proposed share of ACC (%) 50.01%
Ambuja's share of ACC at PT (Rs mn) (B) 133,616
0
Consolidated capacity (mt) 68.4

Attributable capacity (mt) 51.3
Target attributable EV 420,266
Rs/US$ 61
FIGURE 188
Ambuja – Key assumptions
CY13 CY14E CY15E CY16E
Capacity (mt) 28.95 29.25 34.25 34.25
Utilisations (%) 80.3% 82.4% 77.2% 83.9%

Ambuja – EV/EBITDA Ambuja – P/E
16.0 30.0
14.0
25.0
12.0
20.0
10.0
8.0 15.0
6.0 10.0
4.0
5.0
2.0
- -
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14

15 December 2014 93
FIGURE 191
Ambuja – P/B
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
P/B Average
FIGURE 192
Ambuja – Free cash flow outlook
Rs Bn
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
CY10 CY11 CY12 CY13 CY14E CY15E CY16E
OCF FCF Capex
Estimate revisions
FIGURE 193
Summary of revision of Barclays estimates (Rs mn)
Ambuja 115,871 22,737 13,685 115,871 22,737 13,136 0.0% 0.0% 4.2%
Ambuja 124,766 28,665 18,068 121,462 26,026 15,010 2.7% 10.1% 20.4%
Factoring in higher demand growth visibility in the medium term, we raise our CY15E
volume and profitability estimates, now expecting volume growth of 9.6% in CY15E and
8.7% in CY16E. We also expect profitability to improve on improving utilisations and higher
realisations. Thus, we raise our CY15E EBITDA/t estimate by 8.4%.
15 December 2014 94
Company background
Ambuja Cements has been operating in India’s cement market for more than 25 years. It
had total production capacity of c28mtpa in 2013, with five integrated cement
manufacturing plants and eight cement grinding units across the country. The company
focuses on improving profitability through power and fuel efficiency. Ambuja Cements is
among the top three cement manufacturers by capacity in the northern and western
regions of India.
Major footprints in northern and western India

We believe Ambuja Cements is well placed in terms of its geographical markets. The bulk of
the company’s capacity is in the western and northern parts of India, where both demand
and pricing power are above the national average. Although Ambuja has no plants in the
southern region, it supplies cement to southern markets through its cement terminal at
Cochin.
FIGURE 194
Ambuja Cements – Key financial snapshot
Per-ton analysis (Rs) CY10 CY11 CY12 CY13 CY14E CY15E CY16E

EBITDA 975 945 1,154 757 943 1,085 1,177
Volumes (t) 20.0 20.9 21.4 23.3 24.1 26.4 28.7

Ambuja Cements – geographical distribution of capacity, Ambuja Cements – focused on building capacity in north and
2009 west India, 2013
Capacities in mt Capacities in mt
North
7.4
West West
40%
8.9 13.1 North
49% 47% 12.7
45%
East East
2.0 2.3
11% 8%
15 December 2014 95
SHREE CEMENT (SRCM IN; OW; PT INR 9,975; +11%): ROOM FOR FURTHER
UPSIDE; MAINTAIN OW
We reiterate our Overweight rating on Shree Cement and expect a strong EBITDA CAGR
SRCM IN / SHCM.NS of 32% over FY14-17E. We believe Shree still offers attractive exposure to the north
Stock Rating India market. The commissioning of new capacity (a 2mtpa clinker line) in Rajasthan,
OVERWEIGHT coupled with the recently concluded acquisition of Jaiprakash Associates’ (JPA) assets,
Industry View should help Shree further consolidate its market share in the north, in our view, and also
NEUTRAL address the clinker-cement capacity mismatch. We expect the company to sustain its
Price Target cost leadership and remain free cash flow positive even as it pursues an aggressive
INR 9975.00 expansion strategy. We revise our earnings estimates up to factor in the improving
Price (11-Dec-2014) demand outlook, and consequently raise our price target to Rs9,975 from Rs9,601.
INR 8974.60
Strong expansion pipeline: Alongside the capacity additions in 1Q FY15, Shree expects to
commission the Chhattisgarh unit (2.5mtpa) by April 2015. We expect the new capacity
+11%
additions to help drive a c12% CAGR in volumes over FY14-17E. Shree Cement recently
acquired JPA’s 1.5mtpa cement grinding unit in Haryana for a total consideration of Rs3.6bn
(implying a US$39/t valuation). We believe the acquisition would be a strategic fit as it
should help the company further consolidate its market share in the north and also address
the clinker-cement capacity mismatch. We expect Shree to remain free cash flow positive
over FY14-17E even with its large expansion pipeline.
Cost leadership to continue: We believe two fundamental drivers should allow Shree to
maintain its low-cost leadership in India’s cement sector: 1) it reported the highest captive
power consumption (c95%) among peers in FY14 – waste heat recovery systems (WHRS)
plants comprise almost a third of the company’s captive power generation, enabling it to have
one of the lowest power costs in the industry. We believe Shree’s power plant expansion
would enable it to retain its low-cost advantage; it has already ordered 27MW of WHRS for its
Raipur expansion, while a further 25MW of WHRS capacity is scheduled to come on stream in
Rajasthan in FY16 according to the company; and 2) higher production of blended cement,
leading to lower use of clinker (and hence lower coal costs). Shree Cement’s combined power
and fuel costs (on cement per ton basis) in FY14 were down c20% y/y.
Valuation: To reflect our higher earnings estimates, we raise our price target for Shree to
Rs9,975 from Rs9,601. We value the company at 12x EV/EBITDA (unchanged); at a 20%
premium to ACC and Ambuja applied to our revised FY16E EBITDA of Rs26.9bn. We believe
Shree deserves to trade at a premium as it still offers attractive exposure to the north India
market, which we expect to remain most attractive in terms of improving utilisation,
consolidation and higher entry barriers. Our price target implies an EV/tonne of US$219/t.
Key risks: Key downside risks to our investment thesis and price target for Shree Cement
include: 1) lower-than-expected utilisation and cement realisations; 2) lower supply of pet-
coke; 3) falling merchant power prices and delays in commissioning of new capacity; 4)
increasing competitive intensity; and 5) a fall in demand in North India.
Shree Cement(SHCM.NS): Financial and Valuation Metrics EPS INR

FY Jun 2013 2014 2015 2016 2017
EPS 288.19A 249.06A 338.46E 441.88E 581.34E

P/E 31.1 36.0 26.5 20.3 15.4
Consensus numbers are from Thomson Reuters
15 December 2014 96
Shree Cement (SHCM.NS) Stock Rating: OVERWEIGHT
EBITDA 13,898 22,351 26,900 32,101 32.2% Why Overweight? Shree Cement is one of the most
EBIT 10,248 16,616 20,424 26,550 37.3% operationally efficient cement companies in the mid-
Pre-tax income 8,956 14,885 19,139 25,266 41.3% cap space on the back of 100% captive power
Net income 8,677 11,791 15,394 20,252 32.6% availability, innovative fuel mix management and a
EPS (reported) (INR) 249.06 338.46 441.88 581.34 32.7% short lead distance. The company is in a rapid
expansion phase but has ensured that its low-cost
EPS (adj) (INR) 225.95 338.46 441.88 581.34 37.0%
advantage is not lost with additional capacity.
DPS (INR) 9.36 9.36 9.36 9.36 0.0%
Our upside case assumes 5% higher volumes
(Rs219/share), 5% higher realisations (Rs713/share)
EBITDA margin (%) 23.6 27.6 29.1 31.6 28.0 and a further 5% fall in power/fuel/freight costs
EBIT margin (%) 17.4 20.5 22.1 26.1 21.5 (Rs111/share).
Pre-tax margin (%) 15.2 18.4 20.7 24.9 19.8
Net margin (%) 14.7 14.5 16.6 19.9 16.5 Downside case INR 9,025.00
ROIC (%) 15.4 18.1 18.5 19.4 17.9 Our downside case assumes 5% lower volumes
ROE (%) 18.4 19.8 20.3 20.9 19.8 (Rs127/share), 5% lower realisations (Rs712/share),
Payout ratio (%) 3.8 2.8 2.1 1.6 2.6 a further 5% increase in power/fuel/freight costs
(Rs111/share) and a further 10% cash outlay in
Balance sheet and cash flow (INRmn) CAGR penalty for the CCI order (Rs18/share).
Intangible fixed assets 0 0 0 0 N/A Upside/Downside scenarios
Total assets 62,991 71,100 87,279 108,316 19.8%
Short and long-term debt 17,312 12,845 12,845 12,845 -9.5%
Other long-term liabilities -1,429 -1,429 -1,429 -1,429 N/A
Total liabilities 15,883 11,416 11,416 11,416 -10.4%
Net debt/(funds) -6,725 -14,698 -24,719 -55,402 N/A
Change in working capital 1,435 2,672 1,076 1,047 -10.0%
Free cash flow -1,732 7,189 14,236 24,898 N/A

P/E (reported) (x) 36.0 26.5 20.3 15.4 24.6
EV/EBITDA (x) 22.0 13.3 10.5 8.0 13.5
FCF yield (%) -0.6 2.3 4.6 8.0 3.6
P/BV (x) 6.6 5.2 4.1 3.2 4.8 Value
Dividend yield (%) 0.1 0.1 0.1 0.1 0.1
Net debt/capital (%) -10.7 -20.7 -28.3 -51.1 -27.7
Quality
Sales volume (mt) 14.3 16.3 18.8 20.1 12.2%
Realisation/t 3,125.8 45,162.7 3,125.8 3,125.8 0.0% Sentiment
EBITDA/t 985.4 1,282.5 1,281.8 1,422.1 13.0%
Low High

Note: FY End Jun
15 December 2014 97
Investment case
Expect further market share gains in North India
Shree Cement’s dispatch growth recorded what we view as an impressive CAGR of 11.1%
for the five years to FY14; we estimate that north India’s overall cement dispatches grew
c8% over the same period. The recently commissioned 2mtpa clinker line in Rajasthan,
coupled with the recently concluded acquisition of Jaiprakash Associates’ (JPA) assets,
would further consolidate Shree Cement’s leading market position in North India, in our
view.
Shree Cement currently has clinker capacity of 12mt, which could potentially support
cement production of 19-20mtpa (assuming a cement to clinker ratio of 1.6x). However,
the company’s grinding capacity stood at 17.5mt as at end-FY14, which would have created
a clinker-cement mismatch. The recently concluded JPA acquisition would allow the
company bridge this gap, in our view, increasing the overall cement capacity to 19mt. The
company has stated that it plans to utilize its kilns in Rajasthan to supply clinker to JPA’s
grinding unit. Furthermore, we believe a closer presence to end markets (targeting Haryana)
should enable the company to further rationalise logistics costs. We also view the cost of
the acquisition (at an implied value of US$39/t) as attractive.
FIGURE 197
Acquisition of JPA’s grinding unit would address mismatch in grinding and clinker capacity
Clinker Cement
capacity capacity
Timeline (mtpa) (mtpa) Comments
Jun-13 10.4 13.5 Ras unit IX kiln commissioned in June 2013
May-14 10.4 15.5 Ras grinding unit
Jun-14 12.4 15.5 Ras unit X clinker
Jul-14 12.4 17.5 Bihar grinding unit
H2 FY15E 12.4 19.0 Acquisition of JP's 1.5mt grinding unit at Panipat
H2FY15E NA 20.2 Greenfield expansion in Suratgarh plant
H1FY16E NA 22.7 Integrated (clinkerization-cum-grinding) unit in Chhattisgarh
East and Central India project execution ahead of our estimates

Shree Cement is in rapid expansion mode; it plans to increase capacity to 21.5mt by March
2015 (excluding the JPA acquisition). Looking to enter the under-penetrated Bihar market, it
initiated work on setting up an integrated unit (clinkerization cum grinding) of 2.0 mt in
Chhattisgarh. The unit was commissioned in July 2014 (vs our previous estimate of January
2015). The quarter ending June 2014 also saw the commissioning of the split grinding unit
at Aurangabad, Bihar, with a capacity of 2.0mt (vs our previous estimate of December
2014). This expansion has ramped up ahead of our expectations and marks the company’s
entry into the eastern and central regions of India.
15 December 2014 98

Shree Cement – Geographical capacity breakdown, FY13 Shree Cement – Expected geographical capacity
breakdown by FY16E
East
2.0
Central 9%
2.5
12%
North North
17.5 16.7
100% 79%
Source: Company data, Barclays Research estimates Source: Company data, Barclays Research estimates
Cost leadership continues

Shree Cement’s combined power and fuel costs (on a cement per ton basis) in FY14 were
down c20% y/y. Although a fall in international coal prices was a major external factor, a
number of internal factors also contributed to the decline, in our view, including: 1) higher
volumes from captive power while minimizing grid and exchange purchases; and 2) higher
production of blended cement, leading to lower use of clinker (and hence lower coal costs).

Power & fuel costs declined on a per ton basis in FY14… …but freight costs rose due to higher diesel prices and
railway freight tariffs
Rs/t Rs/t
1400 40% 900 35%
1200 30% 800 30%

700 25%
1000 20%
600
20%
800 10% 500
15%
600 0% 400
10%
300
400 -10%
200 5%
200 -20% 100 0%
0 -30% 0 -5%
FY11 FY12 FY13 FY14 FY11 FY12 FY13 FY14
Power & Fuel Costs (Per Ton) Growth Freight & Forwarding (Per Ton) Growth
15 December 2014 99
Valuation
To reflect our higher earnings estimates (factoring in the improving demand and pricing
outlook), we raise our price target for Shree to Rs9,975 from Rs9,601. Our new price target
is based on a target EV/EBITDA multiple of 12x (unchanged) applied to our revised FY16E
EBITDA of Rs26,900mn, and implies an EV/tonne of US$219/t. Our target multiple for Shree
is at a 20% premium to the multiple we use for ACC and Ambuja. Our valuation uses the
long-term trading averages of ACC and Ambuja as a benchmark. This is because they are
the only companies under our coverage that are large caps which have been operating for a
long period; our valuation multiple is one standard deviation above this to account for the
improving market outlook. We then apply a premium for Shree. We believe Shree deserves
to trade at a premium to ACC and Ambuja given it still offers attractive exposure to the
North India market, which we believe would remain most attractive in terms of improving
utilisation, consolidation and higher entry barriers.
FIGURE 202
Shree Cement – EV/EBITDA-based valuation
Valuation FY16E

Target EV/EBITDA multiple (x) 12.0x
Net Debt / (Cash) (Rs mn) (24,719)
No. of shares (mn) 35
Capacity (mt) 23
Rs/US$ 61
Implied EV/ tonne (US$) 219

Shree Cement – EV/EBITDA Shree Cement – P/E
16.0 45.0
14.0 40.0
12.0 35.0
30.0
10.0
25.0
8.0
20.0
6.0
15.0
4.0 10.0
2.0 5.0
- -

15 December 2014 100

FIGURE 205
Shree Cement – P/B
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
-
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
P/B Average
FIGURE 206
We expect stronger operating cash flows to fund capex needs over FY15/16E
Rs Bn
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
-5.0
OCF FCF Capex
Estimate revisions
FIGURE 207
Summary of revision of Barclays estimates
FY15E - New FY15E - Previous Change in estimates (%)
Shree Cement 81,094 22,351 11,791 80,285 19,903 10,355 1.0% 12.3% 13.9%
FY16E - New FY16E - Previous Change in estimates (%)
Shree Cement 92,521 26,900 15,394 92,521 25,069 12,179 0.0% 7.3% 26.4%
We raise our earnings estimates to factor in the improving demand outlook. We also expect
margins to improve on the back of ongoing cost-saving initiatives and improving utilisation
levels.

Company background
Shree Cement, established in 1985, is now one of the largest cement manufacturers in India,
with cement capacity of 17.5mtpa and total power generation capacity of 570MW as at
end-FY14. The company enjoys a leadership position in cement in northern India, with the
majority of its plants located in Rajasthan. Shree Cement has built split grinding units in
close proximity to key markets, a strategy that has helped to keep logistics cost low. Fuel
cost optimization through captive power capacity, waste heat recovery systems, and use of
cheaper fuels remain key focus areas for the company. Shree is in a rapid phase of
expansion and is diversifying into the eastern and central Indian markets.
FIGURE 208
Shree Cement – Key financial snapshot
Per-ton analysis (Rs) FY11 FY12 FY13 FY14 FY15E FY16E FY17E

EBITDA 701 988 959 985 1,276 1,282 1,411
Volumes (t) 10.3 14.9 12.5 14.3 16.1 18.8 19.7
FIGURE 6 FIGURE 7
Cement business – Realisation and volume trend Core cement business EBITDA per ton trend
Rs/t mt Rs/t
4,500 4.0
1,400
4,000 3.8
3.6 1,200
3,500
3,000 3.4 1,000
3.2
2,500 800
3.0
2,000 600
2.8
1,500 2.6 400
1,000 2.4
500 200
2.2
0 2.0 0
Mar'14
June'14
Sep 11
Sep 12
Sep'13
Sep'14
Sep'13
Dec 11
Jun 12
Dec 12
Jun 13
Dec'13
Sep'14
Mar 12
Mar 13
Dec 11
Mar 12
Jun 12
Dec'13
Dec 12
Mar 13
Jun 13
Mar'14
June'14
Sep 11
Sep 12
Cement realisations Volumes Cement EBITDA
FIGURE 8 FIGURE 9
Power business – Realisation and volume trends Power business EBITDA surprised on the upside
Rs/unit mn units Rs mn
6.00 900 2,000
800 1,800
5.00 1,600
700
4.00 600 1,400
1,200
500
3.00 1,000
400
800
2.00 300 600
200 400
1.00
100 200
0.00 0 0
Mar'14
June'14
Mar'14
Sep 11
Sep 12
Sep'13
Sep'14
June'14
Sep 11
Sep 12
Sep'13
Sep'14
Dec 11
Jun 12
Dec 12
Jun 13
Dec'13
Mar 12
Mar 13
Dec 11
Jun 12
Dec 12
Jun 13
Dec'13
Mar 12
Mar 13
Power realisations Power volumes Power EBITDA

Source: Company data, Barclays Research estimates Source: Company data, Barclays Research estimates

Valuation Methodology and Risks

ACC Limited (ACC IN / ACC.NS)

Valuation Methodology: Our 12-month price target for ACC of Rs1,423 is based on a target EV/EBITDA multiple of 10x applied to our CY15E
EBITDA of Rs24,696mn, and implies an EV/tonne of US$118/t (using 61 INR/USD). Our valuation multiple of 10x is one standard deviation
above the long-term average (FY99 to present), which highlights the improving market outlook. We use ACC and Ambuja as a benchmark for
the industry because they are the only companies under our coverage that are large caps which have been operating for a long period. Our
target multiple is at a 20% discount to the multiple we use for Ultratech and Shree Cement given ACC's relatively muted growth outlook and
uncertainty arising from the announced global merger between Holcim and Lafarge. Despite the improving outlook for cement in the country,
we believe challenges for ACC remain, including a higher cost structure, legacy plants, and reduced availability of linkage coal. Although we
expect ACC to benefit from synergies from the announced merger with Ambuja and initiatives such as increasing usage of AFRs, we expect
profitability would continue to lag peers.
Risks which May Impede the Achievement of the Barclays Research Price Target: Risks to our investment thesis and price target for ACC
include, to the upside: 1) a higher-than-expected rebound in cement demand, leading to higher cement dispatches and prices; and 2) a higher
supply of linkage coal. To the downside: 1) further delays in synergy benefits; and 2) a slower-than-expected recovery in cement demand and
pricing.
Ambuja Cements (ACEM IN / ABUJ.NS)
Valuation Methodology: We value Ambuja at Rs215 using a sum-of-the-parts-based methodology. We value Ambuja's standalone cement
business using an EV/EBITDA multiple of 10x applied to our CY15E EBITDA of Rs28,665mn. Our valuation multiple of 10x is one standard
deviation above the long-term average (FY99 to present), which highlights the improving market outlook. We use ACC and Ambuja as a
benchmark for the industry because they are the only companies under our coverage that are large caps which have been operating for a long
period. We also add the value of Ambuja's attributable share of ACC (50%) at our 12-month price target for ACC. Our price target implies an
EV/tonne of US$134/t on the consolidated capacity. Our target multiple for the standalone cement business is at a 20% discount to the multiple
we use for Ultratech and Shree Cement, given Ambuja's relatively muted growth outlook and uncertainty arising from the announced global
Risks which May Impede the Achievement of the Barclays Research Price Target: Upside risks to our investment thesis and price target for
Ambuja include: any higher-than-expected rebound in cement demand, leading to higher cement dispatches and prices. Moreover, we do not
see a material risk to the share price if the proposed restructuring is not completed.
Grasim Industries Ltd. (GRASIM IN / GRAS.NS)
Valuation Methodology: We value Grasim at Rs4,572 using a sum-of-the-parts valuation and conservatively apply a holding company discount
of 25% for its 60.3% stake in Ultratech. We value the standalone businesses (VSF and Chemicals) at a target EV/EBITDA multiple of 5x applied to
our FY16E EBITDA of Rs2,613mn (standalone). We conservatively use a 5x multiple for the standalone business, which is at a 30% discount to its
global peers (based on Bloomberg estimates). We value Grasim's investments in other listed companies at a 25% discount to the current market
price, consistent with our holding company approach. We expect Grasim's holding company discount on its 60% stake in Ultratech to narrow
(currently c47% based on FY16E EV/EBITDA) as the VSF outlook improves.
Risks which May Impede the Achievement of the Barclays Research Price Target: Key downside risks to our investment thesis and price target
for Grasim include: 1) any further sharp correction in VSF prices; 2) exposure to currency fluctuations, as Grasim has subsidiaries and JVs around
the world; 3) delays in commissioning of new capacity at Vilayat; and 4) risks pertaining to Ultratech given Grasim's 60% stake in the company.
Shree Cement (SRCM IN / SHCM.NS)
Valuation Methodology: Our price target for Shree Cement of Rs9,975 is based on a target EV/EBITDA multiple of 12x applied to our FY16E
EBITDA of Rs26,900mn, and implies an EV/tonne of US$219/t. Our target multiple for Shree is at a 20% premium to the multiple we use for ACC
and Ambuja. Our valuation uses the long-term trading averages of ACC and Ambuja as a benchmark. This is because they are the only
companies under our coverage that are large caps which have been operating for a long period; our valuation multiple is one standard deviation
above this to account for the improving market outlook. We then apply a premium for Shree. We believe Shree deserves to trade at a premium to
ACC and Ambuja given it still offers attractive exposure to the North India market, which we believe would remain most attractive in terms of
improving utilisation, consolidation and higher entry barriers.
for Shree Cement include: 1) lower-than-expected utilisation and cement realisations; 2) lower supply of pet-coke; 3) falling merchant power
prices and delays in commissioning of new capacity; 4) increasing competitive intensity; and 5) a fall in demand in north India.
Ultratech Cement Ltd. (UTCEM IN / ULTC.NS)
Valuation Methodology: Our price target for Ultratech of Rs2,943 is based on a target EV/EBITDA of 12x applied to our FY16E EBITDA of
Rs69.6bn, and implies an EV/tonne of US$196/t. We use a 12x EV/EBITDA multiple (the same as Shree Cement); this is a 20% premium to the
multiple we use for ACC and Ambuja. Our valuation uses the long-term trading averages of ACC and Ambuja as a benchmark. This is because
they are the only companies under our coverage that are large caps which have been operating for a long period; our valuation multiple is one
standard deviation above this to account for the improving market outlook. We then apply a premium for Ultratech. We believe Ultratech
deserves to trade at a premium to ACC and Ambuja given its strong growth outlook, pan-India scale and presence, better product and sales mix,
cost leadership and strong brand recognition.
for Ultratech include: 1) a slower-than-expected recovery in cement demand; 2) any sharp correction in cement prices or change in
pricing/production discipline among larger players; 3) delays in commissioning of new capacity; 4) balance sheet stress with inorganic
expansion; 5) exposure to currency fluctuations; and 6) CCI penalty.

Valuation Methodology and Risks


ANALYST(S) CERTIFICATION(S):
I, Chirag Shah, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the
subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to
the specific recommendations or views expressed in this research report.
The POINT® Quantitative Equity Scores (POINT Scores) referenced herein are produced by the firm’s POINT quantitative model and Barclays
hereby certifies that (1) the views expressed in this research report accurately reflect the firm's POINT Scores model and (2) no part of the firm's
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each
individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written
request to: Barclays Research Compliance, 745 Seventh Avenue, 14th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com
or call 212-526-1072.
The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total
revenues, a portion of which is generated by investment banking activities.
Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA.
These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE
Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’s account.
Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting
payment or reimbursement by any covered company of their travel expenses for such visits.
In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to
https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html. In order to access Barclays Research
Conflict Management Policy Statement, please refer to: https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-conflict-
management.html.
The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental
analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ
from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or
otherwise.
Primary Stocks (Ticker, Date, Price)
ACC Limited (ACC.NS, 11-Dec-2014, INR 1428.35), Equal Weight/Neutral, J
Ambuja Cements (ABUJ.NS, 11-Dec-2014, INR 223.05), Underweight/Neutral, J
Grasim Industries Ltd. (GRAS.NS, 11-Dec-2014, INR 3359.85), Overweight/Neutral, J/K/M
Shree Cement (SHCM.NS, 11-Dec-2014, INR 8974.60), Overweight/Neutral, J
Ultratech Cement Ltd. (ULTC.NS, 11-Dec-2014, INR 2484.45), Overweight/Neutral, J/K/M
Disclosure Legend:
A: Barclays Bank PLC and/or an affiliate has been lead manager or co-lead manager of a publicly disclosed offer of securities of the issuer in the
previous 12 months.
B: An employee of Barclays Bank PLC and/or an affiliate is a director of this issuer.
C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in equity securities issued by this issuer or one of its affiliates.
D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from this issuer in the past 12 months.
E: Barclays Bank PLC and/or an affiliate expects to receive or intends to seek compensation for investment banking services from this issuer
within the next 3 months.
F: Barclays Bank PLC and/or an affiliate beneficially owned 1% or more of a class of equity securities of the issuer as of the end of the month prior
to the research report's issuance.
G: One of the analysts on the coverage team (or a member of his or her household) owns shares of the common stock of this issuer.
H: This issuer beneficially owns 5% or more of any class of common equity securities of Barclays Bank PLC.
I: Barclays Bank PLC and/or an affiliate has a significant financial interest in the securities of this issuer.
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of this issuer.
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from this issuer within the past 12 months.
L: This issuer is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.
M: This issuer is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC
and/or an affiliate.
N: This issuer is, or during the past 12 months has been, a non-investment banking client (non-securities related services) of Barclays Bank PLC
and/or an affiliate.


O: Barclays Capital Inc., through Barclays Market Makers, is a Designated Market Maker in this issuer's stock, which is listed on the New York
Stock Exchange. At any given time, its associated Designated Market Maker may have "long" or "short" inventory position in the stock; and its
associated Designated Market Maker may be on the opposite side of orders executed on the floor of the New York Stock Exchange in the stock.
P: A partner, director or officer of Barclays Capital Canada Inc. has, during the preceding 12 months, provided services to the subject company for
remuneration, other than normal course investment advisory or trade execution services.
Q: Barclays Bank PLC and/or an affiliate is a Corporate Broker to this issuer.
R: Barclays Capital Canada Inc. and/or an affiliate has received compensation for investment banking services from this issuer in the past 12
months.
S: Barclays Capital Canada Inc. is a market-maker in an equity or equity related security issued by this issuer.
T: Barclays Bank PLC and/or an affiliate is providing equity advisory services to this issuer.
Risk Disclosure(s)
Master limited partnerships (MLPs) are pass-through entities structured as publicly listed partnerships. For tax purposes, distributions to MLP unit
holders may be treated as a return of principal. Investors should consult their own tax advisors before investing in MLP units.
Guide to the Barclays Fundamental Equity Research Rating System:
Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)
relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage
universe").
In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or
Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors
should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.
Stock Rating
Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-
month investment horizon.
Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month
investment horizon.
Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to
comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division
of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.
Industry View
Positive - industry coverage universe fundamentals/valuations are improving.
Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.
Negative - industry coverage universe fundamentals/valuations are deteriorating.
Below is the list of companies that constitute the "industry coverage universe":

ACC Limited (ACC.NS) Adaro Energy Tbk PT. (ADRO.JK) Aluminum Corporation of China Ltd. (2600.HK)
Ambuja Cements (ABUJ.NS) Angang Steel Co., Ltd. (0347.HK) Anhui Conch Cement Co., Ltd. (0914.HK)
Banpu PCL (BANPU.BK) BHP Billiton Ltd. (BHP.AX) Bumi Resources Tbk PT. (BUMI.JK)
China Coal Energy Co., Ltd. (1898.HK) China Hongqiao Group Ltd. (1378.HK) China National Building Material Co., Ltd.
(3323.HK)
China Resources Cement Holdings Ltd. China Shanshui Cement Group Ltd. China Shenhua Energy Co., Ltd. (1088.HK)
(1313.HK) (0691.HK)
China Steel Corp. (2002.TW) Coal India (COAL.NS) Fortescue Metals Group Ltd. (FMG.AX)
Grasim Industries Ltd. (GRAS.NS) Harum Energy Tbk PT. (HRUM.JK) Hindalco Industries Ltd. (HALC.NS)
Hindustan Zinc Ltd. (HZNC.NS) Hyundai Steel Co. (004020.KS) Indo Tambangraya Megah Tbk PT. (ITMG.JK)
IRC Ltd. (1029.HK) Jiangxi Copper Co., Ltd. (0358.HK) Jindal Steel & Power (JNSP.NS)
JSW Steel (JSTL.NS) Korea Zinc Co., Ltd. (010130.KS) Maanshan Iron & Steel Co., Ltd. (0323.HK)
MMG Limited. (1208.HK) National Aluminium Co., Ltd. (NALU.NS) NMDC Ltd. (NMDC.NS)
POSCO (005490.KS) Sesa Sterlite Ltd. (SESA.NS) Shree Cement (SHCM.NS)
Steel Authority of India (SAIL.NS) Tata Steel (TISC.NS) TB Bukit Asam Tbk PT. (PTBA.JK)


UC Rusal (0486.HK) Ultratech Cement Ltd. (ULTC.NS) Yanzhou Coal Mining Co., Ltd. (1171.HK)
Distribution of Ratings:
Barclays Equity Research has 2654 companies under coverage.
44% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 54% of
companies with this rating are investment banking clients of the Firm.
40% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 46% of
13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 39% of
Guide to the Barclays Research Price Target:
Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will
trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price
target over the same 12-month period.
Guide to the POINT® Quantitative Equity Scores:
The POINT Quantitative Equity Scores (POINT Scores) are based on consensus historical data and are independent of the Barclays fundamental
analysts’ views. Each score is composed of a number of standard industry metrics.
A high/low Value score indicates attractive/unattractive valuation. Measures of value include P/E, EV/EBITDA and Free Cash Flow.
A high/low Quality score indicates financial statement strength/weakness. Measures of quality include ROIC and corporate default probability.
A high/low Sentiment score indicates bullish/bearish market sentiment. Measures of sentiment include price momentum and earnings revisions.
These scores are valid as of the date of this report. To view the latest scores, which are updated monthly, click here.
For a more detailed description of the underlying methodology for each score, please click here.
Barclays offices involved in the production of equity research:
London
Barclays Bank PLC (Barclays, London)
New York
Barclays Capital Inc. (BCI, New York)
Tokyo
Barclays Securities Japan Limited (BSJL, Tokyo)
São Paulo
Banco Barclays S.A. (BBSA, São Paulo)
Hong Kong
Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)
Toronto
Barclays Capital Canada Inc. (BCCI, Toronto)
Johannesburg
Absa Bank Limited (Absa, Johannesburg)
Mexico City
Barclays Bank Mexico, S.A. (BBMX, Mexico City)
Taiwan
Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)
Seoul
Barclays Capital Securities Limited (BCSL, Seoul)
Mumbai
Barclays Securities (India) Private Limited (BSIPL, Mumbai)
Singapore
Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)


ACC Limited (ACC IN / ACC.NS) Stock Rating Industry View
INR 1428.35 (11-Dec-2014) EQUAL WEIGHT NEUTRAL
Rating and Price Target Chart - INR (as of 11-Dec-2014) Currency=INR
Date Closing Price Rating Adjusted Price Target

1,600 16-May-2014 1430.15 1428.00
10-Apr-2014 1389.25 1011.00
1,500
19-Feb-2014 1025.80 949.00
1,400 08-Nov-2013 1089.65 Underweight 1043.00

Source: Thomson Reuters, Barclays Research
1,300 Historical stock prices and price targets may have been adjusted for
stock splits and dividends.
1,200
1,100
1,000
900
Jan- 2012 Jul- 2012 Jan- 2013 Jul- 2013 Jan- 2014 Jul- 2014
Closing Price Target Price Rating Change
Source: IDC, Barclays Research

Link to Barclays Live for interactive charting
J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of ACC Limited.
Valuation Methodology: Our 12-month price target for ACC of Rs1,423 is based on a target EV/EBITDA multiple of 10x applied to our CY15E
EBITDA of Rs24,696mn, and implies an EV/tonne of US$118/t (using 61 INR/USD). Our valuation multiple of 10x is one standard deviation above
the long-term average (FY99 to present), which highlights the improving market outlook. We use ACC and Ambuja as a benchmark for the
industry because they are the only companies under our coverage that are large caps which have been operating for a long period. Our target
multiple is at a 20% discount to the multiple we use for Ultratech and Shree Cement given ACC's relatively muted growth outlook and uncertainty
arising from the announced global merger between Holcim and Lafarge. Despite the improving outlook for cement in the country, we believe
challenges for ACC remain, including a higher cost structure, legacy plants, and reduced availability of linkage coal. Although we expect ACC to
benefit from synergies from the announced merger with Ambuja and initiatives such as increasing usage of AFRs, we expect profitability would
continue to lag peers.
Risks which May Impede the Achievement of the Barclays Research Price Target: Risks to our investment thesis and price target for ACC
include, to the upside: 1) a higher-than-expected rebound in cement demand, leading to higher cement dispatches and prices; and 2) a higher
supply of linkage coal. To the downside: 1) further delays in synergy benefits; and 2) a slower-than-expected recovery in cement demand and
pricing.


Ambuja Cements (ACEM IN / ABUJ.NS) Stock Rating Industry View
INR 223.05 (11-Dec-2014) UNDERWEIGHT NEUTRAL
250 16-May-2014 224.35 196.00

10-Apr-2014 212.35 155.00
19-Feb-2014 154.60 142.00
225
08-Nov-2013 176.70 Underweight 156.00
Source: Thomson Reuters, Barclays Research
200
Historical stock prices and price targets may have been adjusted for
stock splits and dividends.
175
150
125

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ambuja Cements.
Valuation Methodology: We value Ambuja at Rs215 using a sum-of-the-parts-based methodology. We value Ambuja's standalone cement
business using an EV/EBITDA multiple of 10x applied to our CY15E EBITDA of Rs28,665mn. Our valuation multiple of 10x is one standard
deviation above the long-term average (FY99 to present), which highlights the improving market outlook. We use ACC and Ambuja as a
benchmark for the industry because they are the only companies under our coverage that are large caps which have been operating for a long
period. We also add the value of Ambuja's attributable share of ACC (50%) at our 12-month price target for ACC. Our price target implies an
EV/tonne of US$134/t on the consolidated capacity. Our target multiple for the standalone cement business is at a 20% discount to the multiple
we use for Ultratech and Shree Cement, given Ambuja's relatively muted growth outlook and uncertainty arising from the announced global
Risks which May Impede the Achievement of the Barclays Research Price Target: Upside risks to our investment thesis and price target for
Ambuja include: any higher-than-expected rebound in cement demand, leading to higher cement dispatches and prices. Moreover, we do not see
a material risk to the share price if the proposed restructuring is not completed.


Grasim Industries Ltd. (GRASIM IN / GRAS.NS) Stock Rating Industry View
INR 3359.85 (11-Dec-2014) OVERWEIGHT NEUTRAL

3,800
3,600
3,400
3,200
3,000
2,800
2,600
2,400
2,200
2,000
Closing Price

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Grasim Industries Ltd..
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Grasim Industries Ltd. within the past
12 months.
M: Grasim Industries Ltd. is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank
PLC and/or an affiliate.
Valuation Methodology: We value Grasim at Rs4,572 using a sum-of-the-parts valuation and conservatively apply a holding company discount of
25% for its 60.3% stake in Ultratech. We value the standalone businesses (VSF and Chemicals) at a target EV/EBITDA multiple of 5x applied to
our FY16E EBITDA of Rs2,613mn (standalone). We conservatively use a 5x multiple for the standalone business, which is at a 30% discount to its
global peers (based on Bloomberg estimates). We value Grasim's investments in other listed companies at a 25% discount to the current market
price, consistent with our holding company approach. We expect Grasim's holding company discount on its 60% stake in Ultratech to narrow
(currently c47% based on FY16E EV/EBITDA) as the VSF outlook improves.
for Grasim include: 1) any further sharp correction in VSF prices; 2) exposure to currency fluctuations, as Grasim has subsidiaries and JVs around
the world; 3) delays in commissioning of new capacity at Vilayat; and 4) risks pertaining to Ultratech given Grasim's 60% stake in the company.


Shree Cement (SRCM IN / SHCM.NS) Stock Rating Industry View
10,000 Date Closing Price Rating Adjusted Price Target

9,500 11-Nov-2014 9113.05 9601.00
9,000
26-Aug-2014 7901.90 8980.00
8,500
08-Jul-2014 7277.50 8003.00
8,000
7,500 16-May-2014 6169.55 6421.00

7,000 10-Apr-2014 5613.00 5007.00
6,500
19-Feb-2014 4377.80 4588.00
6,000
5,500
08-Nov-2013 4420.15 Overweight 4906.00
5,000 Source: Thomson Reuters, Barclays Research
4,500 Historical stock prices and price targets may have been adjusted for
4,000 stock splits and dividends.
3,500
3,000
2,500
2,000
1,500

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Shree Cement.
Valuation Methodology: Our price target for Shree Cement of Rs9,975 is based on a target EV/EBITDA multiple of 12x applied to our FY16E
EBITDA of Rs26,900mn, and implies an EV/tonne of US$219/t. Our target multiple for Shree is at a 20% premium to the multiple we use for ACC
and Ambuja. Our valuation uses the long-term trading averages of ACC and Ambuja as a benchmark. This is because they are the only companies
under our coverage that are large caps which have been operating for a long period; our valuation multiple is one standard deviation above this to
account for the improving market outlook. We then apply a premium for Shree. We believe Shree deserves to trade at a premium to ACC and
Ambuja given it still offers attractive exposure to the North India market, which we believe would remain most attractive in terms of improving
utilisation, consolidation and higher entry barriers.
for Shree Cement include: 1) lower-than-expected utilisation and cement realisations; 2) lower supply of pet-coke; 3) falling merchant power
prices and delays in commissioning of new capacity; 4) increasing competitive intensity; and 5) a fall in demand in north India.


Ultratech Cement Ltd. (UTCEM IN / ULTC.NS) Stock Rating Industry View
3,000 Date Closing Price Rating Adjusted Price Target
2,800
2,600
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
Closing Price

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Ultratech Cement Ltd..
K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Ultratech Cement Ltd. within the past
12 months.
M: Ultratech Cement Ltd. is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank
PLC and/or an affiliate.
Valuation Methodology: Our price target for Ultratech of Rs2,943 is based on a target EV/EBITDA of 12x applied to our FY16E EBITDA of
Rs69.6bn, and implies an EV/tonne of US$196/t. We use a 12x EV/EBITDA multiple (the same as Shree Cement); this is a 20% premium to the
multiple we use for ACC and Ambuja. Our valuation uses the long-term trading averages of ACC and Ambuja as a benchmark. This is because
they are the only companies under our coverage that are large caps which have been operating for a long period; our valuation multiple is one
standard deviation above this to account for the improving market outlook. We then apply a premium for Ultratech. We believe Ultratech deserves
to trade at a premium to ACC and Ambuja given its strong growth outlook, pan-India scale and presence, better product and sales mix, cost
leadership and strong brand recognition.
for Ultratech include: 1) a slower-than-expected recovery in cement demand; 2) any sharp correction in cement prices or change in
pricing/production discipline among larger players; 3) delays in commissioning of new capacity; 4) balance sheet stress with inorganic expansion;
5) exposure to currency fluctuations; and 6) CCI penalty.

DISCLAIMER:
This publication has been prepared by the Corporate and Investment Banking division of Barclays Bank PLC and/or one or more of its affiliates (collectively
and each individually, "Barclays"). It has been issued by one or more Barclays legal entities within its Corporate and Investment Banking division as provided
below. It is provided to our clients for information purposes only, and Barclays makes no express or implied warranties, and expressly disclaims all warranties
of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized
recipients of this report as its clients. Prices shown are indicative and Barclays is not offering to buy or sell or soliciting offers to buy or sell any financial
instrument.
Without limiting any of the foregoing and to the extent permitted by law, in no event shall Barclays, nor any affiliate, nor any of their respective officers,
directors, partners, or employees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of
anticipated savings or loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any use of this publication or
its contents.
Other than disclosures relating to Barclays, the information contained in this publication has been obtained from sources that Barclays Research believes to
be reliable, but Barclays does not represent or warrant that it is accurate or complete. Barclays is not responsible for, and makes no warranties whatsoever as
to, the content of any third-party web site accessed via a hyperlink in this publication and such information is not incorporated by reference.
The views in this publication are those of the author(s) and are subject to change, and Barclays has no obligation to update its opinions or the information in
this publication. The analyst recommendations in this publication reflect solely and exclusively those of the author(s), and such opinions were prepared
independently of any other interests, including those of Barclays and/or its affiliates. This publication does not constitute personal investment advice or take
into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all
investors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent
advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic
markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those
reflected. Past performance is not necessarily indicative of future results.
This material has been issued and approved for distribution in the UK and European Economic Area (“EEA”) by Barclays Bank PLC. It is being made available
primarily to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to
investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Bank PLC is
authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a
member of the London Stock Exchange.
The Corporate and Investment Banking division of Barclays undertakes U.S. securities business in the name of its wholly owned subsidiary Barclays Capital
Inc., a FINRA and SIPC member. Barclays Capital Inc., a U.S. registered broker/dealer, is distributing this material in the United States and, in connection
therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so only by
contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019.
Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations
permit otherwise.
Barclays Bank PLC, Paris Branch (registered in France under Paris RCS number 381 066 281) is regulated by the Autorité des marchés financiers and the
Autorité de contrôle prudentiel. Registered office 34/36 Avenue de Friedland 75008 Paris.
This material is distributed in Canada by Barclays Capital Canada Inc., a registered investment dealer and member of IIROC (www.iiroc.ca).
Subject to the conditions of this publication as set out above, the Corporate & Investment Banking Division of Absa Bank Limited, an authorised financial
services provider (Registration No.: 1986/004794/06. Registered Credit Provider Reg No NCRCP7), is distributing this material in South Africa. Absa Bank
Limited is regulated by the South African Reserve Bank. This publication is not, nor is it intended to be, advice as defined and/or contemplated in the (South
African) Financial Advisory and Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial
or other professional advice or service whatsoever. Any South African person or entity wishing to effect a transaction in any security discussed herein should
do so only by contacting a representative of the Corporate & Investment Banking Division of Absa Bank Limited in South Africa, 15 Alice Lane, Sandton,
Johannesburg, Gauteng 2196. Absa Bank Limited is a member of the Barclays group.
In Japan, foreign exchange research reports are prepared and distributed by Barclays Bank PLC Tokyo Branch. Other research reports are distributed to
institutional investors in Japan by Barclays Securities Japan Limited. Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with
registered office of 6-10-1 Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm
regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143.
Barclays Bank PLC, Hong Kong Branch is distributing this material in Hong Kong as an authorised institution regulated by the Hong Kong Monetary
Authority. Registered Office: 41/F, Cheung Kong Center, 2 Queen's Road Central, Hong Kong.
Information on securities/instruments that trade in Taiwan or written by a Taiwan-based research analyst is distributed by Barclays Capital Securities
Taiwan Limited to its clients. The material on securities/instruments not traded in Taiwan is not to be construed as 'recommendation' in Taiwan. Barclays
Capital Securities Taiwan Limited does not accept orders from clients to trade in such securities. This material may not be distributed to the public media or
used by the public media without prior written consent of Barclays.
This material is distributed in South Korea by Barclays Capital Securities Limited, Seoul Branch.
All equity research material is distributed in India by Barclays Securities (India) Private Limited (SEBI Registration No: INB/INF 231292732 (NSE), INB/INF
011292738 (BSE) | Corporate Identification Number: U67120MH2006PTC161063 | Registered Office: 208 | Ceejay House | Dr. Annie Besant Road | Shivsagar
Estate | Worli | Mumbai - 400 018 | India, Phone: + 91 22 67196363). Other research reports are distributed in India by Barclays Bank PLC, India Branch.
Barclays Bank PLC Frankfurt Branch distributes this material in Germany under the supervision of Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).
This material is distributed in Malaysia by Barclays Capital Markets Malaysia Sdn Bhd.
This material is distributed in Brazil by Banco Barclays S.A.
This material is distributed in Mexico by Barclays Bank Mexico, S.A.
Barclays Bank PLC in the Dubai International Financial Centre (Registered No. 0060) is regulated by the Dubai Financial Services Authority (DFSA). Principal
place of business in the Dubai International Financial Centre: The Gate Village, Building 4, Level 4, PO Box 506504, Dubai, United Arab Emirates. Barclays

Bank PLC-DIFC Branch, may only undertake the financial services activities that fall within the scope of its existing DFSA licence. Related financial products or
services are only available to Professional Clients, as defined by the Dubai Financial Services Authority.
Barclays Bank PLC in the UAE is regulated by the Central Bank of the UAE and is licensed to conduct business activities as a branch of a commercial bank
incorporated outside the UAE in Dubai (Licence No.: 13/1844/2008, Registered Office: Building No. 6, Burj Dubai Business Hub, Sheikh Zayed Road, Dubai
City) and Abu Dhabi (Licence No.: 13/952/2008, Registered Office: Al Jazira Towers, Hamdan Street, PO Box 2734, Abu Dhabi).
Barclays Bank PLC in the Qatar Financial Centre (Registered No. 00018) is authorised by the Qatar Financial Centre Regulatory Authority (QFCRA). Barclays
Bank PLC-QFC Branch may only undertake the regulated activities that fall within the scope of its existing QFCRA licence. Principal place of business in Qatar:
Qatar Financial Centre, Office 1002, 10th Floor, QFC Tower, Diplomatic Area, West Bay, PO Box 15891, Doha, Qatar. Related financial products or services
are only available to Business Customers as defined by the Qatar Financial Centre Regulatory Authority.
This material is distributed in the UAE (including the Dubai International Financial Centre) and Qatar by Barclays Bank PLC.
This material is distributed in Saudi Arabia by Barclays Saudi Arabia ('BSA'). It is not the intention of the publication to be used or deemed as
recommendation, option or advice for any action (s) that may take place in future. Barclays Saudi Arabia is a Closed Joint Stock Company, (CMA License No.
09141-37). Registered office Al Faisaliah Tower, Level 18, Riyadh 11311, Kingdom of Saudi Arabia. Authorised and regulated by the Capital Market
Authority, Commercial Registration Number: 1010283024.
This material is distributed in Russia by OOO Barclays Capital, affiliated company of Barclays Bank PLC, registered and regulated in Russia by the FSFM.
Broker License #177-11850-100000; Dealer License #177-11855-010000. Registered address in Russia: 125047 Moscow, 1st Tverskaya-Yamskaya str. 21.
This material is distributed in Singapore by the Singapore branch of Barclays Bank PLC, a bank licensed in Singapore by the Monetary Authority of Singapore.
For matters in connection with this report, recipients in Singapore may contact the Singapore branch of Barclays Bank PLC, whose registered address is One
Raffles Quay Level 28, South Tower, Singapore 048583.
Barclays Bank PLC, Australia Branch (ARBN 062 449 585, AFSL 246617) is distributing this material in Australia. It is directed at 'wholesale clients' as defined
by Australian Corporations Act 2001.
IRS Circular 230 Prepared Materials Disclaimer: Barclays does not provide tax advice and nothing contained herein should be construed to be tax advice.
Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot
be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other
matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor.
© Copyright Barclays Bank PLC (2014). All rights reserved. No part of this publication may be reproduced or redistributed in any manner without the prior
written permission of Barclays. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional
information regarding this publication will be furnished upon request.

US08-000001

Barclays India Cement On The Road To Recovery Initiate On Ultratech and Grasim A

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Barclays India Cement On The Road To Recovery Initiate On Ultratech and Grasim A

Uploaded by

Copyright:

Available Formats

Equity Research

Asia ex-Japan Metals & Mining Neu Neu

12.0 GDP Growth GDP 3.0 mt

mt Cost ‐ t Pace of cost increase

Industry Utilizations EBITDA Margin EBITDA/t

INVESTMENT SUMMARY: INDIA’S CEMENT SECTOR ON THE ROAD TO RECOVERY

Utilization levels to go Top 5 players to

Also, peak cost Expect profitability

Expect cost rise to Avg. EBITDA/t is

How to position for expected upturn in demand?

Earnings based valuations look stretched and see limited

Theme #1: Cement demand to revive; expect GDP multiplier

GDP Growth (%) GDP Multiplier

GDP Growth Multiplier

-6 GDP (growth) Construction (growth) - rhs Services (growth) - rhs -15

Source: RBI, Barclays Research

Theme #2: Utilizations to rebound sharply as supply growth

EBITDA/t of new cement plant 10 15 25

FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

Theme #3: Expect consolidation to accelerate

ACC 8.2 9% Ambuja 2.8 8% ACC 7.8 8% ACC 10.4 8%

Theme #4: Margins to improve as pricing power returns

Source: Company data, Barclays Research estimates

Valuations and recommendations

Replacement Cost Avg. EV/t Multiplier (EV/t as a multiplier of replacement cost)

EV/EBITDA Average P/B Average

Earnings upgrades likely to come with a lag

Source: Bloomberg, Barclays Research

Ultratech Cement: Strong growth trajectory; initiate at OW

ACC: Upgrade to EW (from UW) on improving outlook

Ambuja Cements: Expect restructuring benefits, but valuation looks

Shree Cement: Room for further upside; maintain OW

INVESTMENT SUMMARY: INDIA’S CEMENT SECTOR ON THE ROAD

THEME #1 – DEMAND BOTTOMING OUT; EXPECT A FULL

THEME #2 – UTILIZATION TO IMPROVE AS SUPPLY GROWTH

THEME #3 – EXPECT FURTHER CONSOLIDATION & GREATER

THEME #4 – PEAK COST PRESSURES APPEAR TO BE BEHIND ...........34

VALUATIONS REFLECTIVE OF GROWTH EXPECTATIONS ...................38

KEY INDUSTRY RISKS .....................................................................................46

REGIONAL ANALYSIS .....................................................................................47

GRASIM (GRASIM IN; OW; PT INR4,572; +36%): ‘CEMENT’ LINING ..59

ULTRATECH CEMENT LIMITED (UTCEM IN; OW; PT INR2,943;

ACC LIMITED (ACC IN; EW; PT INR1,423; 0%): UPGRADE TO EW ON

AMBUJA CEMENTS (ACEM IN; UW; PT INR215; -4%): EXPECT

THEME #1 – DEMAND BOTTOMING OUT; EXPECT A FULL RECOVERY FROM

Recovery in cement demand could drive multiple to peak levels

y/y (%) Average GDP multiplier of 1.1x

Source: CMA, Ministry of Commerce, RBI, Barclays Research estimates

Segment Key demand drivers

What factors will drive demand?

Rs % Increase Remain same Decrease

Source: Bloomberg data, Barclays Research estimates

Source: DMICDC, Barclays Research Source: DMICDC, Barclays Research estimates

No. of projects revived

65.0 6.0 (a)

Source: CMA, CMIE, Company data, Barclays Research estimates

CAGR FY00-FY05 Cement Demand CAGR

We expect a strong rebound in cement demand growth

Long-term outlook remains strong

1800 kg/capita Global avg at 536kg/capita is substantially higher than 120000

Cement consumption (kg/capita) GDP/capita (US$) - rhs

Source: Cemweek, Barclays Research

2,000 Saudi Arabia