CRISIL IER

Independent Equity Research

Enhancing investment decisions

Orient Cement Ltd

Initiating Coverage
Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis
of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a
five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point
scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL CRISIL
Fundamental Grade Assessment Valuation Grade Assessment
5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)
4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)
3/5 Good fundamentals 3/5 Align (+-10% from CMP)
2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP)
1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Research Analysts

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Orient Cement Ltd January 19, 2017
Capitalising on long-term industry prospects
Fundamental Grade: 3/5 (Good fundamentals) Valuation Grade: 5/5 (CMP has strong upside)
Industry: Cement Fair Value: 206 CMP: 127

We expect Orient Cement Ltd (Orient), a mid-size cement manufacturer present in southern CFV MATRIX
and western regions, to witness robust growth led by demand recovery and acquisition-led
Excellent
geographic diversification. Existing plants in Jalgaon, Devapur and Gulbarga are expected to Fundamentals
gain from price improvement in Maharashtra, Telangana and Andhra Pradesh (AP). Acquisition
of new plants has expanded the grinding capacity to 12.2 million tonnes per annum (mtpa) and 5

Fundam ental Grade

offers diversification opportunities to cater to the fast growing eastern and central regions.
4
Given the expected demand recovery and the company being one of the low cost cement
producers, we expect EBITDA per tonne to increase to 913 per tonne in FY19. We initiate 3
coverage with a fundamental grade of 3/5.
2
Demand and pricing to pick up in core states of Maharashtra, Telangana and AP
Demonetisation is expected to delay recovery in the core states. Demand and realisations are 1
expected to pick up in FY18. Over the long term, cement demand in Maharashtra is expected
Poor
to gain from pick-up in rural housing on the back of favourable monsoons and key infrastructure 1 2 3 4 5
Fundamentals
developments such as roads, metros, corridors and irrigation. We expect demand to grow in
double digits in Telangana and AP driven by government spending on irrigation, housing and Valuation Grade

Dow nside
capital city development. In the background of demand recovery, we expect the company's

Strong

Upside
Strong
price realisations to improve over FY18-19. The company is strongly positioned to leverage its
historical advantage of being one of the low cost cement producers. Its well-located network of
existing plants can help optimise the sales mix and associated logistics, driving EBITDA per
tonne. KEY STOCK STATISTICS
NIFTY/SENSEX 8417/27258
Acquired plants lead to diversification; access to four of five cement regions in India NSE/BSE ticker ORIENTCEM
Acquisition of 74% stake in Bhilai Jaypee Cement Ltd (BJCL) and purchase of Nigrie Grinding
Face value ( per share) 1
Unit from Jaiprakash Power Ventures Ltd (JPVL) provides direct access to the fast growing
eastern market in addition to Uttar Pradesh (UP), one of the large cement consuming states in Shares outstanding (mn) 204.9
India. In fact, cement demand in the eastern region is expected to grow at ~10% CAGR over Market cap ( mn)/(US$ mn) 26,018/383
the next five years. While acquisitions can stretch financials, the relatively lower cost of Enterprise value ( mn)/(US$ mn) 38,552/567
acquisition, potential to better utilise excess clinker and tap newer markets augur well for Orient 52-week range ()/(H/L) 232/115
Cement. This should reduce the historical dependency on Maharashtra and Telangana
Beta 0.8
(accounting for over 75% of FY16 revenue), the primary reason for relatively depressed sale
realisations for the company. The timely and complete integration of plants is critical for the Free float (%) 62.5%
company to benefit from demand recovery. Avg daily volumes (30-days) 225,601
Avg daily value (30-days) ( mn) 28.4
Fair value is 206
We value the company at 8.5x FY19 EV/EBITDA. EBITDA is estimated to increase to 8.4 bn SHAREHOLDING PATTERN
in FY19 from 1.8 bn in FY16 driven by improvement in realisations, increased capacity 100%
utilisation and operations of the new plants. At the current market price of 127, our valuation 90%
grade is 5/5. 80%
70% 62.5% 62.5% 62.5% 62.5%
KEY FORECAST (CONSOLIDATED)
60%

( mn) FY14 FY15 FY16# FY17E FY18E FY19E 50%

40%
Operating income 14,875 16,065 15,829 18,213 31,614 37,711
30%
EBITDA 2,186 3,095 1,856 1,823 5,613 8,381 20% 37.5% 37.5% 37.5% 37.5%
Adj net income 985 1,945 582 -397 1,420 3,341 10%
Adj EPS () 4.8 9.5 2.8 (1.9) 6.1 14.4 0%
Dec-15 Mar-16 Jun-16 Sep-16
EPS growth (%) (38.2) 97.6 (70.1) NM NM 135.3 Promoter Public
Dividend yield (%) 0.9 1.3 0.8 - 1.3 2.6
RoCE (%) 15.7 16.2 5.0 2.7 13.4 17.6 PERFORMANCE VIS--VIS MARKET
RoE (%) 12.5 21.7 5.9 (4.0) 11.9 21.7 Returns
PE (x) 33.7 13.7 45.8 NM 20.8 8.8 1-m 3-m 6-m 12-m
P/BV (x) 4.0 2.7 2.6 2.7 2.1 1.8 Orient Cement 2% -31% -28% -10%
EV/EBITDA (x) 16.3 12.0 21.1 21.3 9.5 6.0 CNX 500 4% -3% 1% 18%
NM: Not meaningful; CMP: Current market price #Abridged financials
Note: Our projections are based on existing IGAAP and not IND-AS. Financials from FY18
onwards are for the consolidated entity (includes Bhilai Jaypee Cement Ltd subsidiary)
Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.crisil.com

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.
Table 1: Business environment
Parameter
Product portfolio
Geographic presence
Market position
Industry growth expectations
and growth drivers
Sales growth
(FY14-16 3-yr CAGR)
Average EBITDA margin
(FY14 -16)
Sales forecast
(FY17-19 3-yr CAGR)
Average EBITDA margin
(FY17-19)
Earnings growth forecast
(FY17-19 3-yr CAGR)
Key competitors
Key risks
Source: Company, CRISIL Research
Ordinary Portland Cement (OPC) and Pozzolana Portland Cement (PPC) used in
construction in housing, infrastructure and commercial segments
Maharashtra and Telangana have historically been the primary markets, contributing over
75% of FY16 revenue
Karnataka, Madhya Pradesh and AP are key secondary markets
With the announced acquisition of Bhilai Jaypee Cement Ltd (74% stake of Jaypee) and
Nigrie Grinding Unit from JPVL expected to be completed by H1FY18, we expect the
company to become a multi-region player, having access to four of the five cement
regions in India from FY18 onwards
Historically, well positioned in the key (sub) markets of Marathwada, Vidharba, Khandesh
and Telangana with good brand recall
Expected to make steady foray into other cement regions
CRISIL Research expects cement demand to grow at a CAGR of 6.5 -7.5% to ~361 mtpa
(million tonnes per annum) by FY21 from ~261 mtpa in FY16. Installed capacity is ~400
mtpa and is expected to reach ~490 mtpa by FY21
Growth drivers
Pick-up in housing, particularly in rural markets and tier 2 cities
Government spending on infrastructure and commercial activities
Smart cities and creation of new state capital
1.2%
15%
34%
17%
79%
Pan India Ultratech, ACC, Ambuja, Shree Cements
Southern & western India - India Cements, Deccan Cements, Kesoram Industries, Sagar
Cement, JK Cement, Ramco Cement, Dalmia Bharat
Delay in pick-up in demand, particularly in rural markets/ tier 2 cities
Delay in normalisation of demand after demonetisation
Industry capacity addition and pressure on pricing can potentially impact realisations
Delays in timely or optimal marketing and supply chain integration of Gulbarga plant and
the newly acquired assets
2
Table 2: Overview of the cement plants
Plant location Basic overview of plants

Existing plants (as of end of FY16)

Devapur, 3 mtpa integrated cement plant with captive limestone mine and captive power plant (CPP)
Telangana Domestic coal linkage is available from Singareni Collieries, located ~50 km away. Imported coal/ pet
coke used for blending as appropriate. Fly ash is sourced from National Thermal Power Company
(NTPC)
Majority of cement has historically been sold in key regions of Marathwada, Vidharba and Telangana
Jalgaon, 2 mtpa grinding unit with captive railway siding
Maharashtra Clinker is transported from Devapur plant. Fly ash is supplied from NTPC, Bhusawal, Maharashtra
Majority of cement has historically been sold in key regions of Khandesh, Marathwada and also in parts
of Madhya Pradesh and Gujarat
Gulbarga, 3 mtpa integrated cement plant, commissioned in FY16, with captive limestone mine and CPP
Karnataka Domestic coal is available from Singareni Collieries. Imported coal/ pet coke used for blending as
appropriate. Fly ash is sourced from various sources including NTPC Ramagundam, Kakatiya Thermal
Power station, Telangana and Raichur Thermal Power Station
Core focus markets are North Karnataka, Pune, South West Maharashtra, Hyderabad and Rayalseema

Plants added by acquisitions announced in FY17 (October 2016)

Bhilai Jaypee
Purchase of 74% stake of Bhilai Jaypee Cement Ltd
Cement Ltd
(BJCL) 1.1 mtpa clinker unit in Babupur, Madhya Pradesh

Clinker unit - 2.2 mtpa grinding unit in Bhilai, Chhattisgarh with committed access to slag from SAIL, Bhilai
Babupur, MP The grinding unit produces Pozzolana Slag Cement (PSC)
Grinding unit The company plans to supply excess clinker from Devapur plant to Bhilai grinding unit, freeing up clinker
Bhilai, from Babupur unit. Based on distances, Bhilai is closer to Devapur as compared to Babupur
Chhattisgarh
From Jaiprakash
Power Ventures Purchase of asset from JPVL
Ltd 2 mtpa grinding capacity housed within JPVL facility, providing access to fly ash in immediate vicinity
Nigrie Grinding The company plans to provide clinker from Babupur, Madhya Pradesh
Unit
Source: Company, CRISIL Research

3
Grading Rationale
On a robust growth path
Over the long term, Orient is on a robust growth path led by: 1) demand revival in
Maharashtra, Telangana and AP on the back of good monsoons, increase in government
spend on irrigation, housing and capital city development; 2) existing plants in close proximity
to recovering markets; and 3) acquisition of new plants providing access to eastern and
central regions.

Even though Orient has historically been one of the low cost producers, its EBITDA per tonne
declined to 420 per tonne in FY16 from 784 per tonne in FY13 on account of significant
exposure to subdued Maharashtra market, where realisations were depressed. With
demand recovery expected in the existing markets and geographical diversification to newer
markets (with relatively higher realisations), we expect EBITDA per tonne to expand to 913
per tonne in FY19. We expect the company to benefit from synergies over the long term after
smooth integration of all plants.

We expect demonetisation to be a disruption in the short term. Average pan-India cement

prices in November and December 2016 declined 1.5% and 3.6% on-month, respectively.
However, we expect demand and realisations to pick up in FY18. Infrastructure and low cost
housing are key demand triggers that are likely to receive a boost from government
programmes.

Existing plants to benefit from demand recovery in

Maharashtra, Telangana and AP
We expect cement demand in Maharashtra to pick up as the housing sector in rural
Maharashtra (historically, one of the core markets for the company) is expected to revive on
account of good monsoons. Demand growth until FY16 was sluggish because of poor
housing demand in key cities and low rural demand on account of below-normal monsoons
since the past two years. Growth will also be aided by key infrastructure developments such
as metro rail, and industrial and freight corridor. In fact, the FY17 state budget has allocated
10-15% higher than the previous year on spending towards irrigation, roads and
infrastructure.

Key demand drivers in Maharashtra

State budget has allocated 1 bn for development of new Chandrapur city, with special
focus on the development of Vidharba and Marathwada regions.

Smart cities of Pune and Solapur to drive construction spending of 15-18 bn over the
next three years and Delhi Mumbai Industrial Corridor (DMIC) plans Shendra - Bidkin as
an industrial hub.

Metro lines 2, 4, 5 and 6 in Mumbai, amounting to project cost of ~600 bn, to be

implemented over the next five-seven years and Western dedicated freight corridor (Western
DFC) covers ~177 km in Maharashtra

Other projects: Projects worth ~1,250 bn are under execution with 46% of these for
railways, followed by around 30% of irrigation projects.

4
We expect demand in Telangana and AP to grow in double digits. They are expected to lead
cement demand in the southern region.

We expect cement demand in Telangana to pick up on account of higher government spend

on irrigation. We expect rural housing demand to pick up as the state witnessed excess rains
after deficient rainfall (27% less than normal) in the past two years. Housing is also expected
to get a boost from the governments 2BHK housing programme. Growth will also be aided
by key infrastructure developments such as Hyderabad metro. In addition, creation of urban
infrastructure outside Hyderabad is a focus area for the Telangana government.

Key demand drivers in Telangana

State budget allocation towards irrigation for FY16-17 is 250 bn (more than 150% over the
previous year). There is continued allocation for development of Hyderabad metro project
and urban development.

2BHK Housing programme: Under this scheme, the government aims to provide two lakh
2BHK houses to eligible poor families. One lakh houses are in and near Hyderabad, and
remaining one lakh houses are in other parts of the state. The entire cost of house is
subsidised. The funding will be met through extra budgetary resources.

Other projects: Projects worth ~ 350 bn are under execution with 51% of the projects for
railways, followed by around 36% of coal based power projects. Government projects
account for ~46% of the total project spend.

We expect demand in AP to be driven by capital city development. The government

estimates expenditure of 150-180 bn in the next three to four years for construction of the
new state capital. Demand will also be driven by spending on irrigation. For FY16-17,
allocation to irrigation has increased more than 30% over last year. Focus will also be on the
development of urban centres and infrastructure to induce investments in the state.

Key demand drivers in AP

State budget allocation towards irrigation, roads, infrastructure and housing is 20-25%
higher than the previous year.

The state government has provided 15 bn for the development of Amaravati, capital city
of Andhra Pradesh in FY17.

Metro projects in Vijayawada and Vishakhapatnam are in the planning stage.

Smart Cities of Vishakhapatnam and Kakinada to drive construction spend of 80-100 bn

over the next three years.

Other projects: Projects worth ~470 bn are under execution; 42% are irrigation projects,
and 34% are coal-based power projects. Government accounts for around 50% of the total
project spend.

5
Bengaluru and Mysore have been the major cement consuming centers in Karnataka. Going
forward, we expect north Karnataka to drive growth. The government has targeted
construction of 3 lakh houses during FY16-17. Metro projects and construction of elevated
roads for purpose of traffic de-congestion in Bengaluru are also expected to drive demand.

Key demand drivers in Karnataka

Construction of 3 lakh houses: The state government provided an outlay of 39 bn to the

Housing Department.

Smart Cities of Belagavi and Davangere to drive construction spend of 10-12 bn over
the next three years.

Phase I of Bangalore Metro project will be completed by 2016-17 and contract for phase II
is already awarded.

Construction of elevated roads from Silk Board to Hebbal Junction (North-South),

K.R.Puram to Tumkur Road (East-West1) and Varthur Lake to Mysore Road (East-West2).
Three others covering approximately 100 km, at a cost of 180 bn, are being planned to
ease traffic.

Other projects: Projects worth ~650 bn are under execution; railway projects account for
43% and coal-based power projects ~23%. Government projects account for ~84% of the
total project spend.

Proximity to recovering markets augurs well for existing plants

Orient is well placed to capitalise on improving demand in Maharashtra and Telangana. The
locations of three plants facilitate it to service Maharashtra, Telangana, AP and Karnataka.
A distance of 300-400 km of the plant covers most of the key markets.

Table 3: Distance to market (km)

Key markets in Maharashtra at average distance of less than ~250 km from the nearest
plant
Rest of Rest of Aurangabad/ Rest of
Nasik Pune Marathwada Nagpur
Plant Nasik division Pune division division Amravati Nagpur division
Gulbarga 511 470 380 249 380 530 649 465
Jalgaon 247 100 389 553 157 285 430 335
Devapur 632 504 656 660 451 220 196 116
Source: CRISIL Research

Districts in Telangana at average distance of less than ~250 km from the nearest plant
Plant North Telangana Medak West Telangana Rangareddy Mahbubnagar
Gulbarga 364 194 373 180 161
Jalgaon 604 563 784 632 723
Devapur 133 269 355 362 427
Source: CRISIL Research

6
Key markets in Karnataka and AP at average distance of less than ~300 km from the Gulbarga plant
Districts in Karnataka Districts in AP
Plant Bellary Belgaum Bijapur Raichur Bagalkot Dharwad Kurnool Nandyal
Gulbarga 306 375 157 173 237 360 273 348
Jalgaon 852 697 588 732 673 766 833 908
Devapur 684 747 546 538 739 809 537 612
Source: CRISIL Research

One of the cost efficient cement producers

Historically, Orient has been one of the cost efficient players in the industry. Its raw material
cost is low. It is also on par with regional players in terms of power and fuel costs, and better
than pan-India players. It is able to maintain a cost-efficient structure owing to location
advantage. Limestone mines are located close to the plants. It has linkages for coal with
Singareni Coal Mines for its Devapur and Gulbarga plants. Fly ash is available from nearby
power plants apart from its captive power plant. Freight costs are low as core markets are
within the vicinity of the plants.

Fig. 1: Total cost per tonne is ~20% less than the industry average
Cost breakup
Power Raw
Total cost per tonne (average 2013-2016) Freight Emp Other
and fuel material

Pan India players 3690 995 1015 905 267 508

Regional players 3687 1110 1132 701 267 477

Orient 3078 935 751 677 165 550

2600 2800 3000 3200 3400 3600 3800

Sample of pan India players include Ultratech, Ambuja, ACC and Shree Cement, sample of regional players include Sagar Cement, Sanghi Cement,
India Cements, Ramco Cement and JK Cement.
Raw material cost includes cost of raw materials, freight inward, consumables and royalty and cess costs. Outward freight includes freight outward
and packing costs.
Source: Company, CRISIL Research;

After the commissioning of the Gulbarga plant, we expect freight cost to reduce as average
lead distances for the existing markets would reduce on account of freight optimisation
between the three plants. We expect power and fuel costs to remain largely in line with the
past cost structure. We also expect the company to benefit from economies of scale in terms
of sourcing of raw materials and overhead costs.

7
Acquisition provides access to fast growing eastern India and
supply deficit UP
Acquisition of 74% stake in BJCL and Nigrie Grinding Unit from JPVL provides the company
access to central and eastern markets, thus providing access to four out of the five cement
regions in India. It also propels Orients grinding capacity to a sizeable 12.2 mtpa.

We expect cement demand in the eastern region to outpace other regions and grow at 9.0-
10.0% CAGR from 2015-16 to 2020-21. Key drivers are projects such as eastern dedicated
freight corridor in Bihar, Jharkhand and West Bengal covering 638 km (in east); metro
projects in Kolkata, Patna, Ranchi; and smart city related development in Odisha
(Bhubaneswar) West Bengal (Newtown Kolkata), Jharkhand (Ranchi), Bihar (Bhagalpur),
Chhattisgarh (Raipur). Industrial demand is also expected to be healthy on the back of
investments by the government and private players in railways, power and steel sectors.

Fig. 2: Dynamics of eastern and central regions

High operating rates in central region Eastern region to grow fastest

Central region (accounts for 17% of the cement demand) East region (accounts for 19% of the cement demand)

2011-2016 2016-2021 (E) 2011-2016 2016-2021 (E)

Demand growth (CAGR) 6.5 7.0 % 9.0 10.0 %

Demand growth (CAGR) 5.5 6.0 % 6.0 7.0 %

Capacity addition growth

10.0 11.0% 6.5 7.5 %
Capacity addition growth 5.5 6.5 % 3.5 4.5 % (CAGR)
(CAGR)
Operating rates
Operating rates 77% 80%
84% 90% (Average)
(Average)

Eastern region includes Chhattisgarh, Bihar, Jharkhand, Odisha, West Bengal and North-Eastern states.
Central region includes Madhya Pradesh and Uttar Pradesh
Source: CRISIL Research

We expect demand in the central region to grow at a healthy pace of 6.0-7.0% CAGR from
2015-16 to 2020-21, driven by the eastern dedicated freight corridor covering 1,058 km (in
UP), metro projects in Bhopal and Indore, smart city related development in Madhya Pradesh
(Bhopal, Indore and Jabalpur) and UP (Lucknow). Further, housing demand in new emerging
pockets of Meerut (post metro linkage to NCR), Aligarh, etc. and continued development in
key centres of Indore, Bhopal, Noida, etc. will continue to aid demand. The central region
has one of the highest operating rates which is expected to increase further as demand
outpaces supply.

8
Acquisition to enable diversification in near future and provide
synergy benefits in the long term

Fig. 3: Regions within 300-350 km radius of the grinding plants

Table 4: Diversification and wider market access

Before acquisition After acquisition
Presence in two regions - south and west Presence in four regions - south, west, central and east
Presence in four states - Maharashtra, Telangana, Andhra Presence in 10 key states - Maharashtra, Telangana, Andhra
Pradesh and Karnataka Pradesh, Karnataka, Madhya Pradesh, Chhattisgarh, Bihar, Uttar
Pradesh, Odisha and Jharkhand
Existing states cover - Orient Cements plants shall cover -
19% of Indias rural population 64% of Indias rural population
27% of urban population 53% of total urban population
21% of total population 61% of total population
30% of Indias gross state domestic product 51% of Indias gross state domestic product
Source: CRISIL Research; Census

9
We expect synergies from the network of plants in the long term. In the near term, the extra
clinker capacity in Devapur can be supplied to the Bhilai grinding unit. The clinker unit in
Babupur, MP will feed the Nigrie Grinding Unit. The road distance between the two is less
than ~200 km, limiting the inward freight cost impact. This configuration enables low cost
clinker produced in Devapur to be optimally utilised, which provides flexibility in the
background of servicing markets with relatively higher realisation in the east.

Acquisition raises operational challenges in the near term

While we expect the deal to be positive in the long term, the process and success of
establishing itself in the new markets, effective and quick turnaround of acquired plants will
be priority for the company over the next two-three years.

In comparison to integrated plants, freight inward costs will be incurred owing to transfer of
clinker. Also, freight outward costs for Nigrie and Bhilai grinding units are expected to be
high as the markets served by Nigrie Grinding Unit are expected to be east UP, Bihar,
Jharkhand and MP. Similarly, Bhilai will serve Chhattisgarh, Odisha and select regions of
MP, thus increasing freight outward cost.

The company is also constrained as it can produce maximum 10.2 MT cement instead of
available grinding capacity of 12.2 MT owing to clinker capacity limitation. Though the
company will have to eventually address this gap, we expect the company to produce 9.2
MT of volumes in FY19 (from 4.4 MT in FY16) without any concern.

We expect the company to start operations in the acquired plants post H1FY18. The
company would also need to finalise the slag and fly ash agreements with SAIL and JPVL,
and obtain requisite regulatory and other approvals.

Acquisition increases leverage and leads to dilution

The company plans to fund the acquisition such that the debt-equity ratio does not go beyond
1.6-1.7x. Accordingly, we expect additional debt of 6.3 bn to be raised in FY18. We also
expect the company to raise equity to the tune of 5 bn in FY18 via QIP, leading to dilution
of ~14%.

Acquisition price on lower side of transactions in past two

years
The company has agreed to acquire 74% stake in BJCL and Nigrie Grinding Unit from JPVL.
We believe the deal value of ~6,590 mn per tonne for 74% stake in BJCL compares
favourably with some of the key deals in the past two years. However, it must be noted that
there is no captive power plant covered in the acquisition. We expect the acquisition to be
complete by H1FY18.

10
Table 5: Key deals in the cement industry in India
Capacity Deal value Deal value
Acquirer Seller Region Deal date
(mtpa) ( bn) ( mn per tonne)
Central and
Orient Cement Jaiprakash Associates 2.2 14.5 6591 Oct-16
East
Nirma Lafarge East and north 11 94 8545 Jul-16
North, central
Ultratech Jaiprakash Associates 21.2 162 7636 Feb-16
and south
Central and
Birla Corporation Reliance Cement 5.5 48 8727 Feb-16
west
Sagar Cements BMM Cement South 1 5.4 5400 Sep-14
Key deals for grinding unit
JPVL
Orient Cement Central 2 5 2500 Oct-16
(Grinding unit)
Jaiprakash Associates
Shree Cement North 1.5 3.6 2400 Aug-14
(Grinding unit)
Bokaro Jaypee Cement
Dalmia Bharat East 2.1 11.5 5476 Mar-14
Ltd
Source: Industry, Corporate announcements, CRISIL Research

Table 6: Key facts about the plants acquired

Bhilai Jaypee Cement Ltd Nigrie Grinding Unit
Clinker Babupur, MP
Location Nigrie, MP
Grinding Bhilai, Chhattisgarh
Clinker capacity 1.1 mtpa -
Cement capacity 2.2 mtpa 2.0 mtpa
Clinker Dec09
Date of commissioning Jun15
Grinding Aug10
Transaction To purchase 74% stake of JAL. 26% resides with SAIL To purchase unit from JPVL
Product PSC (100%) PPC (100%)
Enterprise value ( bn) 14.5 5
Source: Company

Long-term plans after acquisition

We believe the acquisition fits in nicely with the companys plan to become a relevant
national player by 2020. We believe the company would look at the following options, as
availability of clinker becomes a constraint to grow beyond ~10.2 MT (without adjusting for
logistical or any other constraint) in annual volumes.

Brownfield expansion of clinker capacities in Devapur: This could be done at a lower

cost once the acquired plants become operational and deliver results. Clinker expansion at
the Devapur plant will ensure sufficient clinker availability at Devapur, Jalgaon and Bhilai
plants.

11
Brownfield expansion of clinker capacity in Satna and grinding unit in either UP or
Bihar: Clinker capacity addition would facilitate increased production in the Nigrie Grinding
Unit and also increase its presence in UP and Bihar via setting up a grinding unit close to
the consuming region.

Greenfield plant in Rajasthan: The company can look at a greenfield project in Rajasthan
to cover the northern region. This can potentially make the companys diversification efforts
complete.

Historically weak realisations, expected to improve

Orients realisations are weak compared to selected peers owing to strong concentration in
poor performing markets such as rural parts of Maharashtra and Telangana, where demand
conditions have been unfavourable on account of deficient rainfall in the past two years.

Fig. 4: Realisation per tonne ~22% lower than industry Fig. 5: Net realisation per tonne post freight 11% lower
average than regional players
Net Realisation per tonne (average 2013-2016) Realisations net of freight cost
4000
5000 4588 3573
4405
4500 3500 3264
2948
4000 3699 3000
3500
2500
3000
2500 2000

2000 1500
1500
1000
1000
500
500
0 0
Orient Pan India players Regional players Orient Pan India players Regional players

Sample of pan India players include Ultratech, Ambuja, ACC and Shree Cement, sample of regional players include Sagar Cement, Sanghi Cement,
India Cements, Ramco Cements and JK Cement.
Source: Company, CRISIL Research;

We expect realisations to improve as demand picks up in Maharashtra, Telangana and AP,

and as acquisition provides access to higher realisations in eastern and central markets.

12
Demand recovery crucial for pricing growth
Capacity additions are expected to be higher in the eastern and western regions and no
major capacity addition is expected in the central region. While we expect recovery in
demand, given the capacity additions planned in the industry, delay in recovery will hurt
pricing and result in depressed realisations.

Fig. 6: Eastern region to witness highest capacity expansion

Capacity additions
10 9.5

9
8.05
8
(million tonnes)

7
5.95 5.7
6
5
3.75 4 3.9
4
3
3
2 1.2
1 0.5

0
West South Central East

FY17 FY18 FY19

Source: CRISIL Research

13
Key Risks
Delay in price uptick
Pricing scenario in key markets has been subdued on account of weak cement demand.
Demand recovery is dependent on increase in rural spending after monsoons and execution
of government initiatives. Pressure on pricing is a key risk in the scenario of delayed demand
recovery and expected capacity additions in the industry. Normalisation of demand after
demonetisation is a key monitorable.

Increased financial leverage and dilution

The company plans to fund the acquisition such that the debt-equity ratio does not go beyond
1.6-1.7x. Accordingly, we expect additional debt of 6.3 bn to be raised in FY18. We also
expect the company to raise equity to the tune of 5 bn in FY18 via QIP, leading to dilution
of ~14%.

Effective integration of acquired entities

Efficient operations of the acquired plants will be dependent on negotiating fly ash and slag
availability, and intercompany clinker transfer. Even though acquisitions have enabled the
company to diversify to newer geographies, the challenge is to turn around these plants to
optimal production and full-fledged operations. Another challenge for the company is to
establish itself in new markets.

14
Financial Outlook
Revenue to grow at a three-year CAGR of 34%
We expect Orients revenue to grow at a three-year CAGR of 34% to ~38 bn in FY19, driven
by growth in volumes and realisations. Ramp-up at the Gulbarga plant and acquired plants
are expected to drive volume to 9.2 mtpa from 4.4 mtpa in FY16. We expect realisation per
tonne to increase to ~4,108 from ~3,582 in FY16 on account of demand recovery in the
existing markets, higher inherent realisations in eastern markets and access to the important
central market. We expect FY17 to be subdued as demand recovery is delayed owing to
demonetisation and, subsequently, we expect realisations to improve in FY18.

Fig. 7: Revenue growth to pick up in FY18 as acquired Fig. 8: Net realisations per tonne to increase 5% CAGR
plants become operational over FY17-19
( mn) (%) (mtpa) ()
73.6% 4,108
40,000 80% 10.0 3,946 4,500
3,729 3,855
35,000 70% 9.0 3,538 3,582 4,000
3,382
60% 8.0 3,500
30,000
50% 7.0
3,000
25,000 40% 6.0
15.1% 2,500
20,000 30% 5.0
8.0% 2,000
15,000 20% 4.0
19.3% 1,500
-2.5% -1.5% 10% 3.0
10,000 1,000
0% 2.0
5,000 -10% 1.0 500
14,875 16,065 15,829 18,213 31,614 37,711 4.1 4.2 4.1 4.4 5.4 8.2 9.2
- -20% 0.0 -
FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Operating income growth y-o-y (RHS) Volume Realisation per tonne (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

EBITDA to expand to 8.4 bn in FY19

We expect EBITDA per tonne to expand to 913 in FY19 from 420 in FY16 as net realisation
per tonne improves. We have assumed tonne for tonne basis for ex-works cost of clinker
transferred from Babupur to Nigrie and from Devapur to Bhilai. Though acquired plants are
likely to increase cost, we expect overall cost structure to be stable owing to increased
utilisation at the Gulbarga plant and efficient cost structure at the existing plants. As a result,
we expect EBITDA per tonne to expand to 8.4 bn in FY19 from 1.9 bn in FY16.

15
 Fig. 9: Expansion in EBITDA per tonne to 913 in FY19 Fig. 10: EBITDA margin to increase to ~22% in FY19
() () ( mn) (%)
3,250 913 1000 9,000 22% 25%
21%
3,200 784 900 8,000
685 19%
760 800 18% 20%
3,150 7,000
700 15%
3,100 6,000
520 600 15%
3,050 5,000 12%
420 500 10%
3,000 4,000
303 400 10%
2,950 3,000
300
2,900 200 2,000 5%
2,850 100 1,000
2,945 3,018 3,186 3,162 3,079 3,171 3,195 3,206 2,186 3,095 1,856 1,823 5,613 8,381
2,800 0 - 0%
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Cost per tonne EBITDA per tonne (RHS) EBITDA EBITDA margin (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

PAT to register 79% growth over FY17-19

We expect PAT to grow at a three-year CAGR of 79% to 3.4 bn in FY19 owing to healthy
revenue growth and EBITDA margin improvement. Adjusted EPS is expected to increase to
14.4 in FY19 from 2.8 in FY16.

Fig. 11: PAT and PAT margin to improve in FY18-19 Fig. 12: Healthy EPS expected in FY18-19
( mn) (%) ()
4,000 12.1% 14.0% 16.0
3,500 10.4% 12.0% 14.0
3,000 8.9% 12.0
10.0%
2,500 6.6% 10.0
8.0%
2,000 8.0
3.7% 4.5% 6.0% 14.4
1,500 6.0
4.0% 9.5
1,000 4.0 7.8
2.0% 6.1
500 2.0 4.8
1,593 985 1,945 582 1,420 3,341 2.8
(397) 0.0%
- 0.0
-2.0% -1.9
(500) -2.0
-2.2%
(1,000) -4.0% -4.0
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E
PAT PAT margin (RHS) EPS

Source: Company, CRISIL Research Source: Company, CRISIL Research

Robust cash flow from operations and strong balance sheet

We expect Orient Cement to report ~6.1 bn cash flow from operations over the next three
years. To fund the acquisition, we estimate debt to increase to ~24 bn in FY18 from
12.9 bn in FY16. Gearing (gross debt to equity) is expected to increase to 1.7x in FY18 and
reduce to 1.3x in FY19 on account of higher repayment. We do not expect any major capital
expenditure until FY19 and cash generated to be available to service debt.

16
Fig. 13: Strong cash flow from operations in FY18-19 Fig. 14: Comfortable gearing; healthy interest coverage
( mn) 1.8 18.5 1.7 20.0
5,000 18.0
1.6
4,500 1.4 1.3
1.4 14.1 1.3 16.0
4,000 1.1 14.0
3,500 1.2 11.3
12.0
3,000 1.0
10.0
2,500 0.8
4,357 8.0
2,000
0.6 0.4
1,500 6.0
2,806
2,462 0.4 2.7
1,000 1,864 0.2 2.0 4.0
1,640 1,648 1.7
500 453 0.2 0.5 2.0
- 0.0 0.0
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Cash flow from operations Gross debt to equity ratio Interest coverage ratio (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

17
Management Overview
CRISIL's fundamental grading methodology includes a broad assessment of management
quality, apart from other key factors, such as industry and business prospects, and financial
performance.

Experienced and professional management

Orient is a part of the CK Birla group. The other companies in the group are Orient Paper
and Industries, HIL Ltd, AVTEC and Birla Soft. Mr CK Birla is the chairman and non-
executive director of the company. Mrs Amita Birla, his wife, is also a board member as non-
executive director.

Mr Desh Deepak Khetrapal is the MD and CEO, and has experience of more than 40 years.
He has been associated with the company for more than four years. Though the company
is family-driven, Mr Khetrapal manages the business with sufficient autonomy. He is ably
supported by a senior management team.

The company has embarked on an expansion phase post demerger with Orient Paper. After
the demerger, the company has brought in top management with significant experience in
the industry to manage the growth phase. Mr Sushil Gupta - CFO, Mr Rahul Deshmukh -
COO, Mr Shiva Kant Pandey, Mr Shyam Asawa, Mr Pramod Singhania and Mr N.S. Srinivas
joined the company in the recent past. The senior management has sufficient capabilities to
drive the companys next phase of growth.

18
Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate
governance and management quality, apart from other key factors such as industry and
business prospects, and financial performance. In this context, CRISIL Research analyses
the shareholding structure, board composition, typical board processes, disclosure
standards and related-party transactions. Any qualifications by regulators or auditors also
serve as useful inputs while assessing a companys corporate governance.

We perceive corporate governance at Orient to be good based on a fairly independent board

with relevant experience, periodic disclosure of key operating parameters and healthy quality
of earnings.

Composition of board
Orients board consists of eight members, of whom five are independent directors (ID),
thereby meeting the regulatory requirements. Most IDs are of strong repute and are on
boards of other major organisations. Mr Vinod Kumar Dhall is on the board of ICICI
Prudential Life Insurance Company Ltd and Schneider Electric Infrastructure Ltd, and Mr
Rajeev Jhawar is on the board of Usha Martin Ltd and Neutral Publishing House Ltd.

Transparent management
We found management to be transparent in their communication. Based on the information
furnished in the annual reports and the website, the company provides good amount of data
to understand most of the business. It does not do regular earnings presentations / earnings
concall. However, there is regular media interaction post quarterly results.

Other key observations

Good quality of earnings: Quality of earnings is good as indicated by positive cash flows
generated from operations over the past four years.

No material related party transactions: There are no significant material related party
transactions despite there being a number of group companies.

Maintained healthy dividend payout: Over the past few years, the company has
maintained a healthy dividend payout. The average dividend payout over FY13-16 was
around 27%.

Transparent systems and processes: Based on our interactions with the company and
details mentioned in the annual reports, we opine that its governance systems and
processes are adequate. It has all the necessary committees in place audit, remuneration,
and investor grievances.

Long tenure of auditors: M/s. S.R. Batliboi & Co., LLP has been the auditor of the company
for the last 10 years. Long tenure may impede the auditors objectivity.

19
Valuation Grade: 5/5
We have valued Orient using a one-year forward EV/EBITDA multiple of 8.5x on FY19
EBITDA of 8.4 bn and arrived at a one-year forward fair value of 206 per share. Based on
the current market price of 127, our valuation grade is 5/5.

Our assigned multiple of 8.5x is at a discount to the median for peers with similar or higher
capacity. This discount is attributable to 1) higher financial risk owing to increased leverage,
and 2) the challenge of integrating non-operational plants smoothly and limitation of clinker
capacity.

Table 7: Peer comparison

Capacity Market cap RoE EBITDA margin Forward EV/EBITDA
Peers
(mtpa) ( bn) FY16 FY17E FY18E FY16 FY17E FY18E FY17E FY18E
Ramco Cement 15.4 147 20% 19% 19% 30% 31% 31% 13.9 12.4
JK Cement 12.4 64 4% 12% 19% 15% 17% 19% 12.8 9.8
JK Lakshmi Cement 8.6 55 1% 9% 18% 10% 16% 19% 13.4 9.2
Dalmia Bharat Ltd 25* 180 5% 9% 13% 25% 25% 26% 12.4 10.7
Median 5% 11% 19% 20% 21% 22% 13.1 10.3
Orient Cement 8# 35 6% 9% 19% 12% 16% 22% 14.3 8.6
*Overall capacity of Dalmia Group.
#Current capacity 8 mtpa. Post-acquisition, grinding capacity will be 12.2 mtpa.

One-year forward EV/EBITDA band One-year forward P/B band

( mn) ()
120,000 250

100,000 200

80,000 150

60,000 100

40,000
50
20,000
0
Aug-13

Sep-14

Sep-15

Aug-16
May-14
Dec-13
Oct-13

Dec-14

Apr-15

Nov-15

Apr-16

Nov-16
Jan-16

Jun-16

Jan-17
Jul-15
Feb-14

Jul-14

Feb-15

0
Oct-13
Dec-13

May-14

Dec-14

Apr-15

Nov-15

Apr-16

Nov-16
Aug-13

Sep-14

Sep-15

Jun-16
Aug-16
Jan-16

Jan-17
Feb-14

Jul-14

Feb-15

Jul-15

Orient Cement 1.0x 2.0x

EV 6x 12x 16x 20x 3.0x 4.0x

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

20
 Traded volume and price
() ('000)
250 6,000

5,000
200

4,000
150
3,000
100
2,000

50
1,000

0 0
Oct-13

Sep-14

Dec-14

Apr-15

Nov-15

Sep-16
May-14

Jan-17
Jun-16
Jul-13

Feb-14

Jul-15

Feb-16

Total traded quantity (RHS) Orient Cement

Source: NSE, CRISIL Research

21
Company Overview
Orient, a CK Birla group company, was formerly part of Orient Paper & Industries. It was
demerged from Orient Paper & Industries in 2012. The plant in Devapur, Adilabad District,
Telangana, began cement production in 1982. In 1997, a split-grinding unit in Nashirabad,
Jalgaon and Maharashtra was added. In December 2015, Orient started commercial
production at its integrated cement plant with a capacity of 3 mtpa in Chittapur, Gulbarga
and Karnataka. The product mix includes OPC and PPC sold under the Birla A1 brand.
Recently it announced acquisition of 74% stake in Bhilai Jaypee Cement Ltd and Nigrie
Grinding Unit.

Fig. 15: Configuration of cement plants

Source: company

Table 8: Milestones
1982 Line- I construction completed in Devapur, Telangana
1990 Line-II was commissioned
1997 Line-I was upgraded to 1.18 mtpa
1997 Launched a 2 mtpa clinker grinding plant in Jalgaon, Maharashtra
2009 Line III was commissioned in July 2009
2012 Demerged into a separate entity from Orient Paper and Industries
2015 Commissioned a 3 mtpa capacity integrated plant in Gulbarga in Karnataka. Installed capacity reached 8 mtpa
2016 Acquired 74% stake in Bhilai Jaypee Cement Ltd (grinding capacity of 2.2 mtpa) and purchased Nigrie Grinding Unit
(grinding capacity of 2 mtpa)

22
Annexure: Long-term trends
Increasing urbanisation in one of the key drivers for cement demand. It provides an impetus
to housing demand in urban areas as migrants from rural areas require dwelling units. Nearly
36% of the country's population is expected to live in urban locations by 2020 from 31% in
2011. Demand for rural housing has witnessed a slowdown in the past couple of years. Rural
demand in the past five years was driven by government-supported schemes and increase
in rural income. Robust rural wage growth drives construction of larger and
more pucca houses.

Fig. 17: Increasing shift to pucca housing to drive rural

Fig. 16: Trend of urbanisation to urban housing demand housing demand
50% 90% % of rural households living in pucca houses
% of urban population 45% 80%
77%
45% 42% 80%
39% 39% 66%
40% 70% 65%
34% 61% 59%
33%
35% 31% 31% 60% 56%
28% 50%
30% 27% 27% 26% 50%
25%
40%
20%
30%
15%
20%
10%
5% 10%

0% 0%
Andhra Pradesh Karnataka Maharashtra India All-India Andhra Pradesh Karnataka Maharashtra
1991 2001 2011 2006 2012

Source: Census, National Sample Survey Office, Ministry of Statistics & PI, CRISIL Research

Infrastructure spending to boost domestic cement demand

Cement demand from the infrastructure sector is projected to expand about 1.7 times over
the next five years compared with the past five years. As a result, we expect share of
infrastructure to increase from 15-20% of total demand to 20-25%. While financing and
regulatory hurdles have slowed awarding of infrastructure projects over the past one-two
years, the situation is expected to gradually improve. Within the infrastructure space, we
expect the share of high-intensity segments such as road, irrigation, railways and urban
infrastructure to increase in the infrastructure cement demand pie.

23
Table 9: Infrastructure spending in key sectors
Sector FY12-16 FY17-21 Outlook
Irrigation 2616 4089
Road 4700 9868
Railways 1368 2528
Urban infrastructure 1559 2961
Power projects 2037 2037
Airports 148 162
Ports 349 195
Telecom towers 124 140
Total 12901 21980
(All figures in bn)
Source: CRISIL Research

24
Annexure: Financials#
Income statement Balance Sheet
( m n) FY14 FY15 FY16# FY17E FY18E FY19E ( m n) FY14 FY15 FY16# FY17E FY18E FY19E
Operating incom e 14,875 16,065 15,829 18,213 31,614 37,711 Liabilities
EBITDA 2,186 3,095 1,856 1,823 5,613 8,381 Equity share capital 205 205 205 205 233 233
EBITDA m argin 14.7% 19.3% 11.7% 10.0% 17.8% 22.2% Reserves 8,026 9,494 9,897 9,500 13,722 16,158
Depreciation 566 479 768 1,206 1,519 1,643 Minorities - - - - 254 157
EBIT 1,620 2,616 1,088 617 4,094 6,738 Net w orth 8,230 9,699 10,102 9,705 14,209 16,548
Interest 144 141 544 1,371 2,361 2,517 Convertible debt - - - - - -
Operating PBT 1,476 2,475 545 (754) 1,733 4,222 Other debt 3,286 11,057 12,898 13,146 23,985 21,816
Other income 31 9 14 73 63 42 Total debt 3,286 11,057 12,898 13,146 23,985 21,816
Exceptional inc/(exp) 25 (47) 41 - - - Deferred tax liability (net) 1,266 1,250 1,228 1,228 83 83
PBT 1,532 2,436 600 (681) 1,795 4,264 Total liabilities 12,782 22,006 24,228 24,079 38,277 38,447
Tax provision 522 538 (23) (284) 502 1,020 Assets
Minority interest - - - - (127) (97) Net fixed assets 8,184 7,922 21,322 23,184 33,701 32,958
PAT (Reported) 1,010 1,898 622 (397) 1,420 3,341 Capital WIP 4,001 13,317 2,418 - 0 0
Less: Exceptionals 25 (47) 41 - - - Total fixed assets 12,184 21,239 23,740 23,184 33,702 32,959
Adjusted PAT 985 1,945 582 (397) 1,420 3,341 Investm ents 11 13 14 14 14 14
Current assets
Ratios Inventory 713 1,099 1,410 1,746 2,900 3,521
FY14 FY15 FY16# FY17E FY18E FY19E Sundry debtors 647 832 921 1,098 1,962 2,387
Grow th Loans and advances 1,116 1,909 1,948 1,821 3,424 4,142
Operating income (%) (2.5) 8.0 (1.5) 15.1 73.6 19.3 Cash & bank balance 812 415 364 416 600 983
EBITDA (%) (31.8) 41.6 (40.0) (1.8) 207.9 49.3 Marketable securities - - - - - -
Adj PAT (%) (38.2) 97.6 (70.1) NM NM 135.3 Total current assets 3,288 4,256 4,643 5,082 8,885 11,033
Adj EPS (%) (38.2) 97.6 (70.1) NM NM 135.3 Total current liabilities 2,773 3,594 4,344 4,376 7,988 9,224
Net current assets 515 662 299 706 896 1,809
Profitability Intangibles/Misc. expenditure 73 93 175 175 3,666 3,666
EBITDA margin (%) 14.7 19.3 11.7 10.0 17.8 22.2 Total assets 12,782 22,006 24,228 24,079 38,277 38,447
Adj PAT Margin (%) 6.6 12.1 3.7 (2.2) 4.5 8.9
RoE (%) 12.5 21.7 5.9 (4.0) 11.9 21.7 Cash flow
RoCE (%) 15.7 16.2 5.0 2.7 13.4 17.6 ( m n) FY14 FY15 FY16# FY17E FY18E FY19E
RoIC (%) 12.2 13.5 5.3 4.6 12.4 15.5 Pre-tax profit 1,507 2,484 559 (681) 1,795 4,264
Total tax paid (549) (554) (0) 284 (502) (1,020)
Valuations Depreciation 566 479 768 1,206 1,519 1,643
Price-earnings (x) 26.4 13.4 44.7 NM 20.8 8.8 Working capital changes 939 (545) 313 (355) (1,164) (530)
Price-book (x) 3.2 2.7 2.6 2.7 2.1 1.8 Net cash from operations 2,462 1,864 1,640 453 1,648 4,357
EV/EBITDA (x) 13.0 11.8 20.8 21.3 9.5 6.0 Cash from investm ents
EV/Sales (x) 1.9 2.3 2.4 2.1 1.7 1.3 Capital expenditure (3,877) (9,554) (3,351) (650) (5,900) (900)
Dividend payout ratio (%) 30.4 18.9 32.9 - 26.8 23.1 Investments and others (11) (2) (1) - (6,300) -
Dividend yield (%) 1.2 1.4 0.8 - 1.3 2.6 Net cash from investm ents (3,888) (9,556) (3,352) (650) (12,200) (900)
Cash from financing
B/S ratios Equity raised/(repaid) - - - - 5,000 -
Inventory days 32 49 59 63 66 71 Debt raised/(repaid) 1,797 7,771 1,841 248 6,013 (2,169)
Creditors days 70 86 99 83 95 97 Dividend (incl. tax) (360) (430) (247) - (445) (904)
Debtor days 14 17 19 19 20 20 Others (incl extraordinaries) 38 (47) 69 0 (0) 0
Working capital days (6) 5 (1) 5 3 7 Net cash from financing 1,475 7,294 1,662 248 10,568 (3,073)
Gross asset turnover (x) 1.2 1.2 0.8 0.6 0.8 0.8 Change in cash position 50 (398) (50) 52 16 383
Net asset turnover (x) 1.8 2.0 1.1 0.8 1.1 1.1 Closing cash 812 415 364 416 600 983
Sales/operating assets (x) 1.4 1.0 0.7 0.8 1.1 1.1
Current ratio (x) 1.2 1.2 1.1 1.2 1.1 1.2 Quarterly financials
Debt-equity (x) 0.4 1.1 1.3 1.4 1.7 1.3 ( m n) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17
Net debt/equity (x) 0.3 1.1 1.2 1.3 1.6 1.3 Net Sales 3,392 3,568 3,537 4,493 4,371 3,848
Interest coverage 11.3 18.5 2.0 0.5 1.7 2.7 Change (q-o-q) -14% 5% -1% 27% -3% -12%
EBITDA 612 381 239 617 404 166
Per share Change (q-o-q) -38.7% -37.7% -37.4% 158.4% -34.4% -59.0%
FY14 FY15 FY16# FY17E FY18E FY19E EBITDA m argin 18.0% 10.7% 6.7% 13.7% 9.3% 4.3%
Adj EPS () 4.8 9.5 2.8 (1.9) 6.1 14.4 PAT 288 280 (131) 194 (76) (294)
CEPS 7.6 11.8 6.6 3.9 12.6 21.4 Adj PAT 288 280 (131) 194 (76) (294)
Book value 40.2 47.3 49.3 47.4 61.1 71.1 Change (q-o-q) -66.3% -2.7% -146.7% -248.5% -139.0% 288.8%
Dividend () 1.5 1.8 1.0 - 1.6 3.3 Adj PAT m argin 8.5% 7.9% -3.7% 4.3% -1.7% -7.6%
Actual o/s shares (mn) 204.9 204.9 204.9 204.9 232.6 232.6 Adj EPS 1.4 1.4 (0.6) 0.9 (0.4) (1.4)

Note: Q1FY17 and Q1FY16 results are reported by the company in accordance with IND-AS. However, the company has not shared Q4FY16
results as per IND-AS. Financials and projections presented in the annexure above are in accordance with IGAAP.
Financials from FY18 onwards are for the consolidated entity (includes Bhilai Jaypee Cement Ltd subsidiary)
For BJCL, we have reclassified advance from holding company as debt in FY17 (for computation of operating cash flow).
#Abridged financials. NM: Not meaningful
Source: CRISIL Research

25
Focus Charts
Revenue growth to pick up in FY18 as acquired plants get Net realisation per tonne to increase at 5% CAGR over
operational FY17-19
( mn) (%) (mtpa) ()
73.6% 4,108
40,000 80% 10.0 3,946 4,500
3,729 3,855
70% 9.0 3,538 3,582 4,000
35,000 3,382
60% 8.0 3,500
30,000
50% 7.0
3,000
25,000 40% 6.0
2,500
15.1% 5.0
20,000 30%
8.0% 2,000
20% 4.0
15,000 19.3% 1,500
10% 3.0
-2.5% -1.5%
10,000 1,000
0% 2.0
5,000 1.0 500
-10% 4.1 4.2 4.1 4.4 5.4 8.2 9.2
14,875 16,065 15,829 18,213 31,614 37,711
- -20% 0.0 -
FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Operating income growth y-o-y (RHS) Volume Realisation per tonne (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Expansion in EBITDA per tonne to 913 in FY19 EBITDA margin to increase to 22% in FY19
() () ( mn) (%)
3,250 913 1000 9,000 22% 25%
21%
3,200 784 900 8,000
685 19%
760 800 18% 20%
3,150 7,000
700 15%
3,100 6,000
520 600 15%
3,050 5,000 12%
420 500 10%
3,000 4,000
303 400 10%
2,950 3,000
300
2,900 200 2,000 5%
2,850 100 1,000
2,945 3,018 3,186 3,162 3,079 3,171 3,195 3,206 2,186 3,095 1,856 1,823 5,613 8,381
2,800 0 - 0%
FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Cost per tonne EBITDA per tonne (RHS) EBITDA EBITDA margin (RHS)

Source: Company, CRISIL Research Source: Company, CRISIL Research

Eastern region to witness highest capacity expansion Trend of urbanisation to drive urban housing demand
9.5 50%
10 45%
45% 42%
9
8.05 39% 39%
8 40%
33% 34%
(million tonnes)

7 35% 31% 31%

5.95 5.7
6 30% 27% 27% 28%
26%
5 25%
3.75 4 3.9
4 20%
3
3 15%
2 1.2 10%
1 0.5
5%
0 0%
West South Central East Andhra Pradesh Karnataka Maharashtra India
FY17 FY18 FY19 1991 2001 2011

Source: Company, CRISIL Research Source: Company, CRISIL Research

26
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