Morning Stock Technical Analys

Morningstar Equity Analyst Report | Report as of 25 Jul 2014 | Page 1 of 9
Ambuja Cements Ltd 500425 (XBOM)

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
Morningstar Pillars
Analyst
Quantitative
Economic Moat
Valuation
Uncertainty
Financial Health
Narrow
QQQQ
High
Narrow
Undervalued
Medium
Strong
Source: Morningstar Equity Research
Quantitative Valuation
500425
r IND
Undervalued
Price/Intrinsic Value
Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Fairly Valued
Overvalued
Current
5-Yr Avg
0.94
26.4
14.3
28.5
73.0
1.65
19.2
14.9
31.3
2.03
Ambuja continues to show better relative pricing power and starts reaping
benefits of cost cutting
Piyush Jain, 04 June 2014
Analyst Note
Investment Thesis
Ambujas fiscal 2015 first quarter standalone net sales

came at INR 27.2 billion, up 14.5% over prior year and 4%
ahead of our estimates. This was driven by a strong 6.4%
growth in blended realisations and 7.6% growth in volume
over the prior year, respectively. Strong price growth is
in-line with our thesis that Ambuja holds pricing power in
its key markets. Ambuja continued to face depressed
demand owing to subdued economic activity. This was
reflected in fall in the adjusted EBITDA margins to 21.6%,
down 0.4% over prior year. However, in our view, the lower
than expected decline in margins is also supported by cost
rationalization efforts by the company, which have started
to show benefits.
As India's second-largest producer of cement and

aggregates, Ambuja Cements will see its earnings
determined largely by demand for construction materials
in the markets it serves.
Sector Country
0.94
16.8
12.2
8.5
17.8
1.86
0.98
15.8
16.1
7.3
12.3
1.34
Source: Morningstar
Bulls Say
OAmbuja Cements has strong positions in
eastern and northern India, where prospects for
robust demand for building materials are brighter
than in southern India. It has a wide distribution
network and leading brands to serve the Indian
market.
OThe low value-to-weight ratio of aggregates
and cement makes long-distance transportation
uneconomical, creating highly localised markets
with barriers to entry for distant competitors.
OAmbuja Cements' financial health is robust and
it is well positioned to lead industry
consolidation.
Bears Say
OAt different times, certain markets have been
subject to intense price competition and economic
headwinds, such as southern India. There's no
guarantee other markets such as western India,
where Ambuja Cements has a strong presence,
won't succumb to the same dynamics.
OWeaker economic conditions coupled with high
interest rates are negatively affecting cement
demand.
ODeregulation of transport fuel prices and rising
railway freight costs could put a cap on margin
improvement in the near term.
The domestic economic downturn during the last 18 to 24

months has resulted in subdued demand for building
materials. However, growth should rebound once
construction activity strengthens. Ambuja Cements' main
business, cement production, is characterised by high
capital and energy intensity, stiff barriers to entry in some
markets, and a low value-to-weight ratio that promotes
regional, rather than national, markets. Cement is made
from limestone, sand, alumina, and iron ore; plants are
usually built close to large deposits of these raw
materials. The need to heat these materials in a kiln to
1,500 degrees Celsius makes fuel one of the largest single
production cost inputs. The company's investments in
integrated plants with clinkers near the raw material
source and grinding plants closer to the distribution
region, coupled with captive power plants, has helped its
cost-competitiveness. Freight is one of the two highest
cost inputs, which typically results in plants providing
cement to regional markets with a limited radius of few
hundred kilometres. Nonetheless, conditions can vary
widely between regions, depending on barriers to entry,
cost of production, local demand, and transport costs. This
means that some regions allow incumbents decent pricing
power. Ambuja Cements' consolidation with ACC will give
it a pan-India distribution network to serve the Indian
market, where retail sales of cement through distributors
account for a significant portion of demand.
We believe the Indian cement market is likely to see a
recovery to normalised performance, owing to planned
government spending on infrastructure and housing which
will generate demand for Ambuja Cements' cement
products. Being one of the largest pan-India players, we
also expect Ambuja Cements to play an active part in the
consolidation of the industry, as smaller players will
struggle to expand capacity at the same pace as demand
growth in a rising cost environment.
Piyush Jain, 24 July 2014
Second quarter results affirm our forecasts and we do not

see any material change to our fair value of INR 262 per
share and narrow moat rating. Ambuja remains
undervalued at current levels of INR 218. Ambujas narrow
economic moat is underpinned by its strong pricing power
in key markets. The industry-level entry barriers that
benefit Ambuja stem from the proximity to raw-material
sources that manufacturing plants require, capital
intensity, and cements ponderous value-to-weight ratio.
High fair value uncertainty reflects exposure to
construction and housing which are cyclical and linked to
economic activity.
All India average cement prices have moved by about 9%
in June to INR 322 per bag from INR 297 per bag. This
increase will help Ambuja to pass on the cost to the
consumers and will improve the profitability for the rest
of the year. We expect prices to soften a bit as we approach
the seasonally weak third quarter. Our five year forecast
includes compounded 10% capacity addition and we
believe the company will pursue both organic and
inorganic expansions to achieve this growth. Long term
demand for building materials remains attractive as
government pursues its high spending on infrastructure
and housing.
Economic Moat
Piyush Jain 04 June 2014
We believe Ambuja Cements' narrow economic moat is

attributable to barriers to entry, and to its low-cost
advantage. Evidence of the existence of Ambuja Cements'
2014 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained
herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. See last page for important disclosures.
Morningstar Equity Analyst Report |Page 2 of 9

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
Close Competitors
Currency (Mil)
Market Cap
TTM Sales
Operating Margin
TTM/PE
Holcim Ltd HOLN
CHF
25,182
19,484
12.23
21.69
Cemex SAB de CV CX
USD
15,409
15,193
7.46
0.00
HeidelbergCement AG HEI
EUR
11,087
14,084
11.70
15.02
economic moat is favourable pricing in key markets, and

adequate returns on invested capital through the various
cycles of economic and construction activity.
The industry-level entry barriers that benefit Ambuja
Cements stem from the proximity to raw-material sources
that manufacturing plants require, capital intensity, and
cements ponderous value-to-weight ratio. Any new
entrant to the Indian cement industry would bear high
capital costs, long gestation periods in seeking
government approvals for land, limestone reserve linkage,
coal supply linkage for captive power approval, and
expenses in establishing a distribution network. In our
view, the acquisition of substantial land by a new entrant
to the cement production industry would invariably require
substantial government assistance. In addition, Ambuja
Cements has a presence across India. This geographic
distribution reach insulates its business from the price
variations between the many regions of India.
Freight costs make up a significant proportion of
productions costs, reflecting the low value-to-weight ratio
of raw materials and finished products. Ambuja Cements'
freight and forwarding costs account for 30% of total
operating costs in 2013. Relatively high shipping costs for
raw materials and the finished product translate into a
favourable pricing environment for regional producers.
Indian markets also work in the form of regional clusters:
south, west, east, central, and northern India. Each region
has its own price-competitive dynamics, with cement
produced in the southern region unlikely to get transported
to the western region and still remain competitive. If local
demand is high enough to require costly imports, then
benefits accrue to local producers because of their
shipping cost advantage. Domestic producers, therefore,
do not have to worry about distant competitors shipping
tonnes of cement into the market, and depressing prices.
In our view, the housing sector is cement's biggest
demand driver. Housing accounts for more than two-thirds
of India's total cement consumption. The other major
consumers of cement include those involved with
infrastructure, commercial construction, and industrial
construction. The outlook for cement demand from the

construction industry during our forecast period is upbeat.
India's per-capita consumption of cement remains low,
currently averaging less than 200 kilograms, versus 500
kilograms in the U.S. and other developed countries. This
should eventually increase, owing to growing government
expenditure on infrastructure and housing, coupled with
favourable demographics, and rising per-capita income.
Infrastructure will derive demand from planned
government spending of USD 1 trillion during the 2012 to
2017 period. Similarly, the housing sector will be boosted
by government initiatives for providing low income
housing in urban and rural areas, while rising per-capita
income will continue to drive demand for luxury housing.
Once May 2014's general elections have passed, we
believe the new government will be able to decisively
implement the planned government spending in the
infrastructure and housing sectors.
Recently, the Indian cement industry has seen significant
consolidation. The two largest cement groups now control
nearly one-third of total domestic capacity. Consolidation
has been more prevalent in the northern and eastern
regions, as market leaders such as Ultratech Cement and
Ambuja Cements have led the way, and have become
larger in size. In fiscal 2014, Jaypee Cement, one of India's
top-four cement manufacturers, chose to exit western
India by selling its entire capacity to the market leader,
Ultratech Cement. With its 28 million tonne capacity,
Ambuja Cements now effectively has 50% share in ACC
with 30 million tonne capacity. We believe the
Holicim-Lafarge merger would further add 7 million to 8
million tonnes of capacity to Ambuja Cements. Lafarge
would provide a strong eastern India presence which,
when coupled with ACC and Ambuja Cements, would lead
to strong sales across northern, western, and eastern
India, along with at least 15% market share across all its
regions. This will effectively allow the company to lower
the cost of cement plants, as overlapping costs will be
eliminated, and increase the utilisation ratio. However,
we don't think these advantages are strong enough to be
sustained over a 20-year horizon, which we think rules out
a wide economic moat.
Valuation
Our fair value estimate for Ambuja Cements is INR 262

per share. Ambuja Cements has been subjected to a
cyclical downturn in construction activity of late, driven

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
by slowing economic activity, deferral of infrastructure

projects, and high interest rates. This has led to
languishing demand for cement, ready-mix concrete, and
aggregates in some regional markets in India.
commercial activity, vacancy rates, and interest rates are

also key determinants and pose a risk to performance.
Government budgets for infrastructure spending remain a
key risk to the segment's performance.
Our fair value estimate is based on the assumption of an

eventual return to more normal conditions. We forecast
compound annual revenue growth of 11% during 2014 to
2023. We expect the average GDP growth rate during our
forecast period to be about 6% per annum. Indian cement
growth is considered to be a 1.2 times multiplier of
average GDP growth and, therefore, our average 7.1%
growth rate in production for Ambuja Cements during the
2015 to 2023 period is consistent with expectations. The
higher growth would be driven by a high level of activity
across end-user sectors such as housing and
infrastructure, buoyed by planned government spending
of more than USD 1 trillion during our explicit forecast
period. We have assumed an increase in the utilisation
rate to mid-cycle 85% by 2018 from 77% in 2013. Average
operating margins during the 2015 to 2023 period are
projected to be 16.6%, slightly higher compared with the
last four-year average of 16%. However, this includes our
recovery assumption, with margins improving to 18.4% in
2023, from 11.9% in 2013 as volume recovers given the
operating leverage of cement operations. The margin
improvement would come from cost synergies from ACC,
Lafarge and Ambuja Cements cost sharing, an upturn in
the economic cycle, and cement price uptick. We use a
13% cost of equity assumption and an approximate 11.6%
weighted average cost of capital assumption. The implied
exit multiple in our discounted cash flow model is about
10 times enterprise value/EBITDA, or enterprise
value/tonne of about USD 155 for fiscal 2015.
Steep energy costs that cannot be recouped through

higher pricing are another threat. Fierce or irrational
competition in regional markets that leads to unfavourable
pricing would also compromise Ambuja Cements'
profitability. As Ambuja Cements continues to acquire
facilities in a consolidating industry environment, we think
the company faces risks in paying appropriate prices, as
well as execution risk on integration.
Political risk could manifest itself in the form of
nationalisation of assets or price controls. Finally,
stringent environmental restrictions could impair Ambuja
Cements' business.
Management
We assign Ambuja Cements a Standard stewardship

rating.
Ambuja Cements' shareholder base has gone through two
major changes in ownership during the past decade. The
current chairman, Narotam Sekhsaria, founded the
company in 1983 and was the majority shareholder, chief
executive, and managing director until 2006. Sekhsaria
was instrumental in introducing coastal transportation
initiatives which were ground-breaking in terms of cost
reductions in the Indian cement industry. In 2006, majority
control of the company was transferred to Holicim Limited
and Sekhsaria was appointed non-executive vice
chairman and later, in 2009, non-executive chairman.
Risk
We assign our fair value estimate a high uncertainty

rating. Despite the diversification of its customer base
across India, Ambuja Cements' business is still primarily
driven by construction activity. This, in itself, depends
highly on the economic cycle. Construction activity
consists of infrastructure, commercial/nonresidential,
and residential. About 40% of demand comes from rural
housing, while 20% comes from urban housing, 20% from
infrastructure, and the rest from other commercial
construction.
The strength of the housing market is a key risk. Broader
In fiscal 2014, Holicim will complete the restructuring of

its Indian operations. This will lead to Ambuja Cements
gaining ownership of ACC, another Holicim subsidiary in
India. Holicim is shifting away from a decentralised Indian
operational structure to a more integrated approach, with
all holdings routed through Ambuja Cements. This, in our
view, will be ultimately a value-creative structure, over
the longer term.
Ajay Kapur is currently the managing director and chief
executive officer of Ambuja Cements' operations. He has
been with the group since 1993, when he joined as
executive assistant to the managing director. He is a

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
Wharton graduate, and has grown through the ranks

working on the marketing, branding and logistics
strategies, before becoming CEO in fiscal 2014. The board
consists of 11 members with six non-executive
independent directors including the chairman. Board
members have worked in various industries around the
globe, with significant skill, knowledge, and experience
to guide the company efficiently and profitably. We think
management has managed the business commendably,
particularly through subdued markets. The company has
done a good job growing through both organic
opportunities and acquisitions. Furthermore, Ambuja
Cements' management has returned capital to
shareholders through a dividend. However, we would like
a higher level of disclosure on its consolidated operations
on a quarterly basis.
Following the current ownership restructuring, Holicim
will hold more than 60% of Ambuja Cements' shares,
making us cautious about the future treatment of minority
shareholders. During the past three years, Ambuja
Cements' dividend payout ratio has averaged a low 17%;
going forward, we expect it to remain at approximately
the same level. While raising the dividend payout ratio is
beneficial for all the shareholders, Ambuja Cements may
choose to keep raising royalty payments. In fiscal 2013,
parent company Holicim increased the royalty payment
from Ambuja Cements to itself to 1%, from between 0.6%
and 0.7% earlier. We will continue to monitor royalty
payments carefully as many majority company owners
often attempt to transfer excess cash through royalty
payments to the detriment of minority shareholders. We
would exercise caution with respect to any additional
increases in the royalty rates.

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
Analyst Notes Archive

Ambuja continues to show better relative pricing
power and starts reaping benefits of cost cutting
Piyush Jain 24 July 2014
Ambujas fiscal 2015 first quarter standalone net sales

came at INR 27.2 billion, up 14.5% over prior year and 4%
ahead of our estimates. This was driven by a strong 6.4%
growth in blended realisations and 7.6% growth in volume
over the prior year, respectively. Strong price growth is
in-line with our thesis that Ambuja holds pricing power in
its key markets. Ambuja continued to face depressed
demand owing to subdued economic activity. This was
reflected in fall in the adjusted EBITDA margins to 21.6%,
down 0.4% over prior year. However, in our view, the lower
than expected decline in margins is also supported by cost
rationalization efforts by the company, which have started
to show benefits.
Second quarter results affirm our forecasts and we do not
see any material change to our fair value of INR 262 per
share and narrow moat rating. Ambuja remains
undervalued at current levels of INR 218. Ambujas narrow
economic moat is underpinned by its strong pricing power
in key markets. The industry-level entry barriers that
benefit Ambuja stem from the proximity to raw-material
sources that manufacturing plants require, capital
intensity, and cements ponderous value-to-weight ratio.
High fair value uncertainty reflects exposure to
construction and housing which are cyclical and linked to
economic activity.
All India average cement prices have moved by about 9%
in June to INR 322 per bag from INR 297 per bag. This
increase will help Ambuja to pass on the cost to the
consumers and will improve the profitability for the rest
of the year. We expect prices to soften a bit as we
approach the seasonally weak third quarter. Our five year
forecast includes compounded 10% capacity addition and
we believe the company will pursue both organic and
inorganic expansions to achieve this growth. Long term
demand for building materials remains attractive as
government pursues its high spending on infrastructure
and housing.
Page
Page
6 of1 9of 1
Quantitative Equity Report | Release Date: 25 July 2014 | Reporting Currency: INR | Trading Currency: INR
Ambuja Cements Ltd 500425

Last Close
Quantitative Fair Value Estimate
Market Cap (Bil)
Sector
Industry
218.30
231.67
337.5
r Basic Materials
Building Materials
Ambuja Cements Ltd is a cement and cement product

manufacturer. The Company has five integrated cement
manufacturing plants and eight cement grinding units in India.
Country of Domicile
IND India
Price Versus Quantitative Fair Value

2010
2011
2012
2013
2014
2015
Sales/Share
Forecast Range
Forcasted Price
Dividend
Split
340
Quantitative Scores
272
Scores
Momentum:
Standard Deviation: 24.25
All Rel Sector Rel Country
Quantitative Moat
Narrow
Valuation
Undervalued
Quantitative Uncertainty Medium
Financial Health
Strong
98
73
91
75
100
52
97
82
204
100
68
99
85
Quantitative Fair Value Estimate

136
Total Return
147.55
52-Wk
243.85
81.80
5-Yr
243.85
68
500425
r
Undervalued
IND
Fairly Valued
Overvalued
Valuation
Sector
Median
Country
Median
19.2
14.9
31.3
2.03
3.0
2.9
0.94
16.8
12.2
8.5
17.8
1.86
1.0
1.0
0.98
15.8
16.1
7.3
12.3
1.34
0.9
0.7
Current 5-Yr Avg
Sector
Median
Country
Median
8.9
4.6
0.6
10.4
3.7
5.9
Current 5-Yr Avg
Price/Quant Fair Value

Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Price/Book
Price/Sales
0.94
26.4
14.3
28.5
73.0
1.65
3.6
3.7
Profitability
Return on Equity %
Return on Assets %
Revenue/Employee (Mil)
14.0
10.1
5.4
16.7
12.0
Score
100
Quantitative Moat
80
60
40
20
0
2007
2008
2009
2010
2011
2012
2013
Financial Health
Current 5-Yr Avg
Distance to Default
Solvency Score
Assets/Equity
Long-Term Debt/Equity
2014
Sector
Median
Country
Median
0.6
534.2
1.4
0.2
0.6
558.9
1.9
0.2
0.7
1.4
0.0
1.4
0.0
1-Year
3-Year
5-Year
10-Year
-6.2
-21.0
-1.4
12.5
7.3
16.1
7.5
-1.4
0.0
14.5
8.4
20.8
8.0
-2.0
-2.0
10.4
10.5
19.7
15.9
Growth Per Share

Revenue %
Operating Income %
Earnings %
Dividends %
Book Value %
Stock Total Return %
40.3
27.4
10.6
26.8
31.4
13.1
-7.3
-25.5
20.7
14.1
1.68
17.3
3.0
1.80
19.5
2.8
1.59
24.0
3.2
1.97
22.1
3.1
1.65
26.4
3.7
Total Return %
+/ Market (Morningstar World
Index)
Dividend Yield %
Price/Earnings
Price/Revenue
Undervalued
Fairly Valued
Overvalued
Monthly Volume (Thousand Shares)

Liquidity: High
1,284
2009
2010
2011
2012
2013
TTM
70,769
13.0
73,902
4.4
85,312
15.4
97,395
14.2
91,917
-5.6
91,917
0.0
Financials (Fiscal Year in Mil)

Revenue
% Change
18,018
8.9
12,168
-16,493
-191.5
12,630
15,487
12,275
18,957
22.4
12,932
14,983
-21.0
12,786
14,983
0.0
12,786
Operating Income
% Change
Net Income
21,291
-13,475
7,816
11.0
18,740
-8,509
10,231
13.8
16,158
-7,326
8,832
10.4
18,600
-6,990
11,610
11.9
11,862
-7,242
4,620
5.0
11,862
-7,242
4,620
5.0
Operating Cash Flow

Capital Spending
Free Cash Flow
% Sales
7.98
-12.5
5.13
8.26
3.5
6.69
7.99
-3.3
5.75
8.38
4.9
7.53
8.27
-1.3
2.99
8.27
0.0
2.99
3.20
42.45
1,525
2.40
48.03
1,534
2.80
52.58
1,543
3.20
57.04
1,546
3.60
61.21
3.60
61.21
1,546
20.1
14.6
17.2
0.85
1.4
18.3
13.2
17.1
0.77
1.4
16.0
11.3
14.4
0.78
1.4
15.3
10.8
13.3
0.81
1.4
14.0
10.1
13.9
0.72
1.4
14.0
10.1
13.9
0.72
Profitability
Return on Equity %
Return on Assets %
Net Margin %
Asset Turnover
Financial Leverage
55.5
25.5
1,657
55.6
-22.3
650
55.7
18.2
696
97.2
19.5
393
90.4
16.3
334
90.4
16.3
Gross Margin %
Operating Margin %
Long-Term Debt
64,679
1.3
73,266
1.2
80,671
1.3
87,982
1.5
94,626
1.4
1.4
Annual Revenue & EPS

Revenue (Mil)
Mar
2013
2012
2011
2010
Earnings Per Share

2013
2012
2011
2010
EPS
% Change
Free Cash Flow/Share
Dividends/Share
Book Value/Share
Shares Outstanding (Mil)
Total Equity
Fixed Asset Turns
Revenue Growth Year On Year %

Jun
Sep
Dec
Total
91,917.2
97,395.4
85,312.3
73,902.1
8.27
8.38
7.99
8.26
15.4
13.0
14.2
8.1
4.4
-5.6
-9.4
2005
2006
2007
2008
2009
2014 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution
is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
2010
2011
2012
2013
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 7 of 9
Morningstar Equity & Credit Research Methodology

Fundamental Analysis
At Morningstar, we believe buying shares of superior
businesses at a discount and allowing them to compound over time is the surest way to create wealth in
the stock market. The long-term fundamentals of businesses, such as cash flow, competition, economic cycles, and stewardship, are our primary focus. Occasionally, this approach causes our recommendations to
appear out of step with the market, but willingness to
be contrarian is an important source of outperformance and a benefit of Morningstars independence.
Our analysts conduct primary research to inform our
views on each firms moat, fair value and uncertainty.
Fundamental Economic
Fair Value
Moat Rating Estimate
Analysis
Uncertainty
Assessment
QQQQQ
QQQQ
QQQ
QQ
Q
Star
Rating
Economic Moat
The economic moat concept is a cornerstone of Morningstars investment philosophy and is used to distinguish high-quality companies with sustainable competitive advantages. An economic moat is a structural
feature that allows a firm to sustain excess returns
over a long period of time. Without a moat, a companys profits are more susceptible to competition. Companies with narrow moats are likely to achieve normalized excess returns beyond 10 years while wide-moat
companies are likely to sustain excess returns beyond
20 years. The longer a firm generates economic profits,
the higher its intrinsic value. We believe lower-quality
no-moat companies will see their returns gravitate to-
ward the firms cost of capital more quickly than companies with moats will. We have identified five sources of
economic moats: intangible assets, switching costs,
network effect, cost advantage, and efficient scale.
Fair Value Estimate

Our analyst-driven fair value estimate is based primarily on Morningstars proprietary three-stage discounted
cash flow model. We also use a variety of supplementary fundamental methods to triangulate a companys
worth, such as sum-of-the-parts, multiples, and yields,
among others. Were looking well beyond next quarter
to determine the cash-generating ability of a companys
assets because we believe the market price of a security will migrate toward the firms intrinsic value over
time. Economic moats are not only an important sorting
mechanism for quality in our framework, but the designation also directly contributes to our estimate of a
companys intrinsic value through sustained excess returns on invested capital.
Uncertainty Rating
The Morningstar Uncertainty Rating demonstrates our
assessment of a firms cash flow predictability, or valuation risk. From this rating, we determine appropriate
margins of safety: The higher the uncertainty, the wider
the margin of safety around our fair value estimate before our recommendations are triggered. Our uncertainty ratings are low, medium, high, very high, and extreme. With each uncertainty rating is a corresponding
set of price/fair value ratios that drive our recommendations: Lower price/fair value ratios (<1.0) lead to positive recommendations, while higher price/fair value
Economic Moat
C O M PE T I T I V E F O R C E S
WIDE
Moat Sources:
Intangible
Assets
NARROW
NONE
Switching
Costs
COMPANY PROFITABILITY
Network
Effect
Cost
Advantage
Efficient
Scale
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 8 of 9
Morningstar Equity & Credit Research Methodology

ratios (>1.0) lead to negative recommendations. In very
rare cases, the fair value estimate for a firm is so unpredictable that a margin of safety cannot be properly
estimated. For these firms, we use a rating of extreme.
Very high and extreme uncertainty companies tend to
have higher risk and volatility.
Quantitative Economic Moat: The quantitative moat

rating is analogous to Morningstars analyst-driven
economic moat rating in that both are meant to describe the strength of a firms competitive position.
Financial Health: Financial health is based on Morningstars proprietary Distance to Default calculation.
Credit Rating
The Morningstar Corporate Credit Rating measures the
ability of a firm to satisfy its debt and debtlike obligations. The higher the rating, the less likely we think the
company is to default on these obligations.
Quantitatively Driven Valuations

To complement our analysts work, we produce Quantitative Ratings for a much larger universe of companies.
These ratings are generated by statistical models that
are meant to divine the relationships between Morningstars analyst-driven ratings and key financial data
points. Consequently, our quantitative ratings are directly analogous to our analyst-driven ratings.
Quantitative Fair Value Estimate (QFVE): The QFVE is
analogous to Morningstars fair value estimate for
stocks. It represents the per-share value of the equity
of a company. The QFVE is displayed in the same currency as the companys last close price.
Valuation: The valuation is based on the ratio of a companys quantitative fair value estimate to its last close price.
Quantitative Uncertainty: This rating describes our level of uncertainty about the accuracy of our quantitative
fair value estimate. In this way it is analogous to Morningstars fair value uncertainty ratings.
Understanding Differences Between Analyst

and Quantitative Valuations
If our analyst-driven ratings did not sometimes differ
from our quantitative ratings, there would be little value in producing both. Differences occur because our
quantitative ratings are essentially a highly sophisticated analysis of the analyst-driven ratings of comparable companies. If a company is unique and has few
comparable companies, the quantitative model will
have more trouble assigning correct ratings, while an
analyst will have an easier time recognizing the true
characteristics of the company. On the other hand, the
quantitative models incorporate new data efficiently
and consistently. Empirically, we find quantitative ratings and analyst-driven ratings to be equally powerful
predictors of future performance. When the analystdriven rating and the quantitative rating agree, we find
the ratings to be much more predictive than when they
differ. In this way, they provide an excellent second
opinion for each other. When the ratings differ, it may
be wise to follow the analysts rating for a truly unique
company with its own special situation, and follow the
quantitative rating when a company has several reasonable comparable companies and relevant information is flowing at a rapid pace.
Uncertainty Rating
Price/Fair Value
2.00
Q
1.75
175%
1.50
1.25
1.00
0.75
155%
125%
95%
QQ
135%
80%
125%
115%
110%
105%
QQQ
90%
85%
80%
70%
QQQQ
60%
0.50
50%
QQQQQ
0.25
Low
Uncertainty Rating
Medium
High
Very High

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
Stewardship
QQQQ
218.70 INR
262.00 INR
0.83
1.65
338.08
Building Materials
Standard
24 Jul 2014
24 Jul 2014
24 Jul 2014
24 Jul 2014
2014 Morningstar. All Rights Reserved. Unless stated

otherwise, this report was prepared by the person(s)
noted in their capacity as Equity Analysts employed by
Morningstar, Inc., including its global affiliates. It has
not been made available to the issuer prior to
publication.
The Morningstar Rating for stocks identifies stocks
trading at a discount or premium to their intrinsic value.
Five-star stocks sell for the biggest risk-adjusted
discount whereas one-star stocks trade at premiums to
their intrinsic value. Based on a fundamentally focused
methodology and a robust, standardized set of
procedures and core valuation tools used by
Morningstars Equity Analysts, four key components
drive the Morningstar Rating: 1. Assessment of the
firms economic moat, 2. Estimate of the stocks fair
value, 3. Uncertainty around that fair value estimate
and 4. Current market price. Further information on
Morningstars methodology is available from
http://global.morningstar.com/equitydisclosures.
It has not been determined in advance whether and in
what intervals this document will be updated. No
material interests are held by Morningstar or the Equity
Analyst in the financial products that are the subject of
the research reports or the product issuer. Regarding
Morningstars conflicts of interest: 1) Equity Analysts
are required to comply with the CFA Institutes Code of

Ethics and Standards of Professional Conduct and 2)
Equity Analysts compensation is derived from
Morningstars overall earning and consists of salary,
bonus and in some cases restricted stock; however
Equity Analysts are neither allowed to participate
directly or try to influence Morningstars investment
management groups business arrangements nor allow
employees from the investment management group to
participate or influence the analysis or opinion prepared
by them. Further information on Morningstars conflict
of interest policies is available from http://global.mor
ningstar.com/equitydisclosures.
Unless otherwise provided in a separate agreement,
you may use this report only in the country in which its
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Morningstar Equity Analyst Report | Report as of 25 Jul 2014 | Page 1 of 9

Ambuja Cements Ltd 500425 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Source: Morningstar Equity Research

Ambujas fiscal 2015 first quarter standalone net sales

As India's second-largest producer of cement and

The domestic economic downturn during the last 18 to 24

Second quarter results affirm our forecasts and we do not

We believe Ambuja Cements' narrow economic moat is

Morningstar Equity Analyst Report |Page 2 of 9

Ambuja Cements Ltd 500425 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Holcim Ltd HOLN

economic moat is favourable pricing in key markets, and

construction. The outlook for cement demand from the

Our fair value estimate for Ambuja Cements is INR 262

Morningstar Equity Analyst Report |Page 3 of 9

Ambuja Cements Ltd 500425 (XBOM)

Fair Value Estimate

Market Cap (Bil)

by slowing economic activity, deferral of infrastructure

commercial activity, vacancy rates, and interest rates are

Our fair value estimate is based on the assumption of an

Steep energy costs that cannot be recouped through

We assign Ambuja Cements a Standard stewardship

We assign our fair value estimate a high uncertainty

In fiscal 2014, Holicim will complete the restructuring of

Morningstar Equity Analyst Report |Page 4 of 9

Ambuja Cements Ltd 500425 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Wharton graduate, and has grown through the ranks

Morningstar Equity Analyst Report |Page 5 of 9

Ambuja Cements Ltd 500425 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Analyst Notes Archive

Ambujas fiscal 2015 first quarter standalone net sales

Ambuja Cements Ltd 500425

Quantitative Fair Value Estimate

Market Cap (Bil)

Ambuja Cements Ltd is a cement and cement product

Price Versus Quantitative Fair Value

Standard Deviation: 24.25

All Rel Sector Rel Country

Quantitative Fair Value Estimate

Current 5-Yr Avg

Current 5-Yr Avg

Price/Quant Fair Value

Growth Per Share

Monthly Volume (Thousand Shares)

Financials (Fiscal Year in Mil)

Operating Cash Flow

Annual Revenue & EPS

Earnings Per Share

Revenue Growth Year On Year %

Morningstar Equity & Credit Research Methodology

Fair Value Estimate

Morningstar Equity & Credit Research Methodology

Quantitative Economic Moat: The quantitative moat

Quantitatively Driven Valuations

Understanding Differences Between Analyst