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February 03, 2012

Index Stock Update >> Marico Stock Update >> Thermax Stock Update >> Andhra Bank Stock Update >> Madras Cements Sector Update >> Cement

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Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai 400 042, Maharashtra. Tel: 022 - 61150000. BSE Cash-INB011073351; F&OINF011073351; NSE INB/INF231073330; CD - INE231073330; MCX Stock Exchange: CD - INE261073330 DP: NSDL-IN-DP-NSDL233-2003; CDSL-IN-DP-CDSL-271-2004; PMS INP000000662; Mutual Fund: ARN 20669. Sharekhan Commodities Pvt. Ltd.: MCX10080; (MCX/TCM/CORP/0425); NCDEX -00132; (NCDEX/TCM/CORP/0142)

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stock update

Marico
Stock Update

Apple Green

Price target revised to Rs171

Company details Price target: Market cap: 52 week high/low: NSE volume: (No of shares) BSE code: NSE code: Sharekhan code: Free float: (No of shares) Rs171 Rs10,021 cr Rs173/112 2.6 lakh 531642 MARICO MARICO 22.9 cr

Hold; CMP: Rs163

Result highlights Results synopsis: Maricos Q3FY2012 consolidated net sales grew by 29.4% year on year (YoY) to Rs1,057.8 crore, driven by a mix of volume growth (of 20% YoY) and price-led growth (of approximately 10% YoY) in Q3FY2012. The gross margins improved by 114bps YoY and 518bps sequentially to 48.5%. However the operating margins were down by 68bps YoY to 11.5% mainly on account of a higher than expected surge in the ad-spends during the quarter. The operating profit grew by 22.1% YoY to Rs121.7 crore. However higher Y-o-Y depreciation charges and a higher incidence of tax (after adjusting for reversal of excess income tax provision of Rs5.6 crore for the previous year) resulted in a 12.9% YoY growth in the adjusted profit after tax (PAT) to Rs78.5 crore. Key highlights of the quarter The volume growth in the domestic consumer products business stood at 16% in Q3FY2012 (in line with a 15% YoY volume growth in Q2FY2012). This was largely on account of a strong volume growth in the flagship brands Parachute (13% YoY), Saffola (15% YoY) and the value-added hair oil portfolio (20% YoY). The company has indicated that the categories in which the company is engaged into are daily consumption categories and hence the company has not witnessed any significant impact of the sustained inflationary pressure. The growth in the rural market was much ahead of the growth in the urban market.
Results Particulars Q3FY12 1057.8 936.1 121.7 9.2 8.2 18.8 103.9 23.4 80.5 2.0 78.5 5.6 84.1 1.3 48.5 11.5 Q3FY11 817.7 718.0 99.7 6.9 7.6 14.6 84.3 13.3 71.0 1.4 69.5 0.0 69.5 1.2 47.3 12.2 % YoY 29.4 30.4 22.1 33.8 7.4 28.9 23.2 75.4 13.4 37.8 12.9 21.0 13.3 114bps (68)bps Q2FY12 974.5 857.8 116.7 10.6 9.1 17.7 100.5 20.5 80.0 1.7 78.3 0.0 78.3 1.3 43.3 12.0 Rs (cr) % QoQ 8.6 9.1 4.4 -13.1 -9.8 6.4 3.4 14.1 0.7 19.9 0.3 7.4 0.7 518bps (46)bps

Shareholding pattern

Others 6% Foreign & Institutions 31%

Promoters 63%

Price chart
170 160 150 140 130 120 110 Jan-11 Jul-11 Apr-11 Jan-12 Oct-11

Net sales Expenditure Operating profit Other income Interest expenses Depreciation PBT Tax Adjusted PAT (before MI) Minority interest (MI) Adjusted PAT (after MI)

Price performance (%) Absolute 1m 6.2 3m 2.1 2.1 6m 12m -4.9 -1.7 26.9 29.8

Extraordinary items Reported PAT Adjusted EPS

Relative -5.6 to Sensex

GPM (%) OPM (%)

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The organic growth of 16% YoY in the international business was largely driven by price hikes as the sales volume in most of the geographies remained under pressure due to the inflationary environment. Kayas revenue grew strongly by 21% YoY to Rs75 crore during the quarter. The same-clinic sales growth sustained at 15% YoY during the quarter. The strong improvement in the gross margins can be attributed to softening in the prices of copra, price increases implemented by the company and a strong volume growth of 16% YoY in the domestic business. The ad-spends stood higher during the quarter as a result of higher spends towards existing brands and new launches made by the company. The company expects the ad-spend as a percentage to sales to sustain in the range of 10-12% in the coming quarters. The company has achieved a market share of ~5% in the skin care segment. The company expects the brand to achieve revenues of around Rs40-50 crore by FY2013. Upward revision in estimates: We have revised upward our earnings estimates for FY2012 and FY2013 by 1.3% and 4.1% respectively to factor in a higher than expected top line growth and an improvement in the gross margins. Outlook and valuation: Despite of inflationary pressures, Marico continued to surprise us with the volume in its domestic consumer products business growing by midteens in the past two quarters. This gives us an indication that the categories in which Marico is operating are not feeling the heat of sustained inflationary pressure. We expect the mid-teen volume growth to sustain in the domestic market. We expect the international business to grow by around 20% YoY on the back of several initiatives undertaken by the company in various international markets. Overall we expect the top line to grow at a compounded annual growth rate (CAGR) of approximately 25% over FY2011-13 and the bottom line to grow at a CAGR of 30% over the same period (on the back of expected improvement in the margins due to softening of raw material prices). In line with the upward revision in earnings estimates, we revise our price target to Rs171 (based on 24x its FY2013E EPS of Rs7.1). The stock has run up after posting a strong operating performance in Q3FY2012, hence there is limited upside visibility from the current levels. Thus

we maintain our Hold recommendation on the stock. At the current market price the stock trades at 31.0x its FY2012E EPS of Rs5.3 and 22.9x its FY2013E EPS of Rs7.1. Domestic consumer products business The consumer products business in India registered a strong growth of 38% YoY to Rs716 crore during the quarter. The volume growth in the domestic consumer products business stood at 16%YoY. This was mainly on account of gain in market share in the value added hair oil and branded coconut oil space, expansion of the Saffola franchise, enhanced reach in rural India and higher spends on media and brand building activities. Also the margins of the domestic consumer products business improved and currently stand at approximately 16%. Coconut oil volume growth improved sequentially Parachute coconut oil rigid packs grew by a strong 40% YoY with volume growth standing at 13% YoY during the quarter. The volume growth improved by 3% on a sequential basis, which is a positive surprise. The small packs continued to achieve good growth mainly on the back of good demand from the rural markets. Also in the high input inflationary environment, the competitive environment was soft, which helped the company to achieve a double digit volume growth. We expect the volume growth in Parachute coconut oil to sustain in high single digits as the company is focusing on gaining market share from competitors and upgrading the consumer from loose to branded coconut oil. However softening of copra prices would result in a return of competitors (Shalimar has enhanced its media activities recently). The prices of copra (which account for40% of the raw material cost) corrected from the highs, posting a decline of 9% sequentially in Q3FY2012 (on a Y-o-Y basis, copra prices were just 4% higher). Though the prices of copra have fallen, they have been volatile in the recent past. If prices continue to drop from the current level, we can see further improvement in the margins of Marico in the coming quarters. Nevertheless the price momentum has to be keenly monitored in the coming quarters. Value added hair oil sustained around 40% growth The value added hair oil portfolio registered a strong growth of 40% YoY driven by a 20% YoY volume growth and the rest by price increases undertaken in the basket. The strong volume growth can be attributed to product innovations, specific offerings, increase in

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distribution reach and higher spends behind brand building and promotional activites. The companys volume market share in the value added hair oil category stood at 23.7% at the end of December 2011. Some of the new launches have performed extremely well for the company. Parachute Advansed ayurvedic oil has garnered a market share of about 10-11% (available in south India and Maharashtra). Parachute Advansed cooling oil has also gained good traction and achieved a market share of about 8-9% in the southern market. Nihar Shanti Amla continued to gain market share on the back of disruptive pricing and achieved a volume market share of around 16.8%. We expect a strong volume growth of 15-20% in the coming years, as the company is focusing on innovations and new launches in the portfolio and supporting the brands with adequate brand building and media activities. Saffola edible oil maintains mid-teen volume growth The persistent high food inflation did not have any impact on the consumption of branded edible oil in the domestic market. Hence Saffola was able to maintain the growth momentum, posting an around 15% YoY volume growth during the quarter. Overall, the Saffola franchisee grew by 29% YoY during the quarter. The brand has maintained its leadership position in the branded edible oil segment with a market share of 57.4% as at the end of December 2011. Safflower oil (accounting for 13% of the raw material cost) and Kardi oil (accounting for11% of the raw material cost) prices were significantly higher by 28% YoY and 33% YoY respectively during the quarter. The company has taken price increases in the range of 89% in its edible oils portfolio in January 2012 to mitigate the input cost pressure. We expect the Saffola edible oil portfolio to maintain an around 15-16% volume growth in the coming years as we expect consumers to shift to the healthy cooking oil on account of improving awareness and rising income levels. Healthy foods under the Saffola brand have got acceptance in the domestic market. Saffola oats has attained an around 10% market share in the oats category and is one of the top three players in the domestic market. The company has introduced savory variants of oats in Tamil Nadu. In view of the good response, the company is planning to prototype the

brand in other south India markets in a phased manner. It has recently started prototyping it in Kerala.
Trend in volume growth in flagship brands Brands Parachute Saffola Value-added Hair Oil Q1 14 18 27 Q2 11 18 14 Q3 5 13 31 Q4 5 14 21 Q1 10 15 32 Q2 10 11 25 Q3 13 15 20 FY11 FY11 FY11 FY11 FY12 FY12 FY12

International business Maricos International business registered a robust growth of 39% YoY during the quarter with a large part of it (about 24% YoY) coming through inorganic means. The organic growth of 16% YoY in the international business was largely driven by price hikes, as sales volume in most of the geographies remained under pressure due to the inflationary environment. The operating margins in the international business sustained at around 11% during the quarter. Bangladesh: High food inflation continued to affect Maricos business performance in Bangladesh (the country accounts for 40-45% of the international business). With sales volume remaining under pressure, the revenue growth (after adjusting for Modified Value Added Tax [Modvat]) stood at 11% YoY during the quarter. A sharp depreciation in the Bangladeshi Taka against the US Dollar has resulted in input cost inflation and consequently led to margins coming under pressure. Parachute maintained its leadership position with a market share of 80% in the branded edible oil market, while Hair Code has maintained its 29% value market share in the hair dye market. The company is focusing on improving its presence in the hair oil space through increased volumes of Parachute Advansed Beli. MENA: The political and economic scenario in the Middle East & North Africa (MENA) region (accounting for 25% of Maricos international business) is on the verge of improvement, except in a few countries like Libya, Yemen and Syria, which are not significant contributors to the companys MENA region revenues. The company has maintained its cautious approach in the MENA region. However the long term potentials are immense for the company (especially in the hair care segment). The company has recently launched a new range of hair oil - Hammam Zait under the Parachute brand (targeting Arab women). The company has also restaged Parachute Gold creams and hair oils across the Middle East markets.

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South Africa: Though the prevailing inflationary situation has resulted in some degree of down-trading in the south African market, the company was able to maintain growth momentum posting a double-digit growth during the quarter, largely on the back of its value-for-money product portfolio. The companys hair care brands have witnessed improvement in their market shares in the ethnic hair care market. South East Asia: The business environment in Vietnam remained challenging for Marico due to the high inflationary environment. But the Malaysian business has continued to grow strongly due to its low base. Our backward calculations indicate that the Vietnamese business must have contributed around Rs47 crore to the International business revenues during the quarter. Kaya Kaya posted a revenue growth of 21% YoY to Rs75 crore in Q2FY2012. The Kaya business in India and the Middle East achieved a same collection sales growth of 15% YoY. This is mainly on account of initiatives undertaken by the company to improve the growth prospects of the business. Kaya provides its skin care services through 103 clinics in India, Middle East and Bangladesh (82 in India across 26 cities and 19 in the Middle East and 2 in Bangladesh). Derma Rx has 4 clinics in Singapore. The products launched from the Derma Rx portfolio and Kaya gained good traction in the domestic market. Around 23% of Kayas revenues come from sale of products. Sensing the strong response for Derma Rx products in the Indian markets, the company is planning to launch them in the Middle East markets in the coming quarters. Also it will continue to enhance its domestic product portfolio. Since the company is in an investment mode, it has made a loss of Rs14.5 crore at the profit before interest and tax (PBIT) level. However the PBIT losses have gone up from Rs7.5 crore in Q1FY2012, which we believe is mainly on account of higher spends on media and promotional activities. However excluding one time expense of Rs12.98 crore the losses would have been around Rs1.52 crore. With the companys focus on improving sales per clinic, we expect a double-digit same store collection growth to sustain in the coming quarters. However losses are likely to sustain in the near term. The company expects the segment to break-even by early FY2014.

Companys key focus areas going ahead In the domestic consumer business, the company has maintained its focus to drive growth by improving its rural reach and concentrating on continuous innovation and renovation in its product portfolio. The rural market now contributes 30% to the consumer business revenues (contribution improved from 27% in FY2011). In the international business, Marico will continue its focus on growing the categories, where it has a significant market share. The company is planning to expand its footprints to other parts of the sub-Saharan Africa region. Though the immediate approach in the MENA region is of caution, the company will focus on improving the growth prospects in the region in the coming quarters. In terms of Kaya the company would continue with its focus on improving the sales at the clinic level and would also try to increase the contribution of sale of products to the overall revenues. It will remain cautious in terms of new clinic addition, but will add clinics wherever required. The company will continue to keep a watch on the movement of prices of key raw materials. It will remain cautious on the pricing actions, as it continues to focus on gaining volume share in the domestic market. Upward revision in estimates: We have revised upward our earnings estimates for FY2012 and FY2013 by 1.3% and 4.1% respectively to factor in a higher than expected top line growth and an improvement in the gross margins.
Revised Particulars Prev Net sales Adj. net profit 318.9 FY2012E Curr %chg 2.9 1.3 322.9 Prev 420.4 3942.8 4057.8 FY2013E Curr %chg 6.1 4.0 437.3 4580 4860.3

Outlook and valuation: Despite of inflationary pressures, Marico continued to surprise us with the volume in its domestic consumer products business growing by midteens in the past two quarters. This gives us an indication that the categories in which Marico is operating are not feeling the heat of sustained inflationary pressure. We expect the mid-teen volume growth to sustain in the domestic market. We expect the international business to grow by around 20% YoY on the back of several initiatives undertaken by the company in various international markets. Overall we expect the top line to grow at a compounded annual growth rate (CAGR) of approximately

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February 03, 2012

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25% over FY2011-13 and the bottom line to grow at a CAGR of 30% over the same period (on the back of expected improvement in the margins due to softening of raw material prices). In line with the upward revision in earnings estimates, we revise our price target to Rs171 (based on 24x its FY2013E EPS of Rs7.1). The stock has run up after posting a strong operating performance in Q3FY2012, hence there is limited upside visibility from the current levels. Thus we maintain our Hold recommendation on the stock. At the current market price the stock trades at 31.0x its FY2012E EPS of Rs5.3 and 22.9x its FY2013E EPS of Rs7.1.

Valuation Particulars Net sales (Rs cr) Share in issue (cr) EPS (Rs) % YoY growth PER (x) Book value (Rs) P/BV (x) EV/Ebidta (x) RoCE (%) RoNW (%) FY2010 2660.8 60.9 4.1 31.0 39.4 10.7 15.2 27.1 35.7 45.5 FY2011 3128.3 256.9 61.4 4.2 1.0 39.0 14.9 10.9 25.5 26.0 32.7 FY2012E 4057.8 322.9 61.5 5.3 25.6 31.0 19.3 8.4 20.5 25.4 30.7 FY2013E 4860.3 437.3 61.5 7.1 35.4 22.9 25.6 6.4 15.2 29.9 31.7

Adj. net profit (Rs cr) 252.1

One-year forward PE (x)

40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12

PE band
160 140 120 100 80 60 40 20 0 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11

27x 23x 19x 15x

Trend in copra prices

7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 Feb-10 Feb-11 Dec-09 Dec-10 Aug-09 Aug-10 Aug-11 Dec-11 Feb-12 Jun-09 Jun-10 Jun-11 Oct-09 Oct-10 Apr-10 Apr-11 Oct-11

Trend in vegetable oil prices

1000.0 920.0 840.0 760.0 680.0 600.0 520.0 440.0 360.0 280.0 200.0 Feb-10 Feb-11 Dec-09 Dec-10 Aug-09 Aug-10 Aug-11 Dec-11 Feb-12 Jun-09 Jun-10 Jun-11 Oct-09 Oct-10 Apr-10 Apr-11 Oct-11

Rs / 100kg

Rs / 10 kg

Sun Flow er

Kardi Oil

Rice Bran

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article.

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February 03, 2012

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Thermax
Stock Update

Emerging Star

Maintain hold with price target of Rs526

Company details Price target: Market cap: 52 week high/low: NSE volume: (No of shares) BSE code: NSE code: Sharekhan code: Free float: (No of shares) Shareholding pattern R526 Rs6,208 cr Rs720/388 1.04 lakh 500411 THERMAX THERMAX 4.0 cr

Hold; CMP: Rs522

Result highlights Results below expectation: Thermax Q3FY2012 results were below our expectation led by revenue sluggishness and margin pressure. Moreover, the standalone order inflow for the quarter remained muted at Rs590 crore (down 40% on a yearly basis and 50% on a sequential basis). On the positive side, the setting up of its power equipment manufacturing plant is progressing as scheduled. The company has also seen an uptick in inquiries since January and expects good demand from the consumption led sectors like auto and durables and also from the food sector. Top line grew by a mere 2%: Thermax Q3FY2012 net income from operations increased by a mere 2% year on year (YoY) on account of flattish revenue in the energy segment versus our expectation of a 7% growth. The company had been reporting sluggishness in order inflow for the past few quarters, which has translated in a revenue slowdown during the quarter. The environment division posted a Y-o-Y growth of 3% in revenue. OPM under pressure: The company reported an operating profit margin (OPM) of 10.7%, which is lower than the Q3FY2011 OPM of 11.8%. The margin was lower because of Rs12.6 crore of foreign exchange (forex) loss booked under other expenses and lower operating leverage. The employee expense was higher by 7% on a Y-o-Y basis at Rs104.2 crore.

Public & others 16% Foreign 11% MF & FI 11% Promoters 62%

Net profit fell by 5%: In spite of a higher other income and lower tax rate, the net profit fell by 5% YoY to Rs95.5 crore, which is lower than our estimated net profit by 8%. The company availed of working capital loan to the tune of Rs90 crore, which has led to a rise in the interest cost. The same is likely to exert further pressure on the companys margins going ahead.
Results Particulars Total operating income Total expenditure As a % of sales Operating profits Other income Q3FY11 1241 1095 88.2 146 12 158 0.2 11 147 47 100 11.8 8.1 32.0 Q3FY12 1269 1134 89.3 135 16 151 0.7 12 138 43 95 10.7 7.5 31.0 -8 34 -4 242 13 -6 -9 -5 % YoY 2 4 M9FY11 3123 2752 85.6 371 39 410 1.2 32 377 121 256 11.9 8.2 32.1 M9FY12E 3617 3228 89.2 390 51 441 2.2 35 404 127 277 10.8 7.7 31.4 5 31 8 79 10 7 5 8 Rs (cr) % YoY 16 17

Price chart
750 690 630 570 510 450 390 330 Jan-11 Jul-11 Apr-11 Jan-12 Oct-11

EBIDTA Interest Depreciation PBT Tax Adjusted PAT Ratios (%) OPM PATM Tax rate

Price performance (%) 1m 3m 6.3 6.3 6m 12m -5.7 -23.4 -2.5 -21.7

Absolute 28.9 Relative 14.5 to Sensex

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Revenue growth muted in Q3FY2012 (Rs crore)

1600 1400 1200 1000 800 600 400 200 0 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12

Slowdown in order inflow reflects in revenue growth with a lagging effect

160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% -60%

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12
Q3FY12

Energy

Enviornment

Order inflow yoy (%)

Revenues yoy (%)

Margins under pressure in view of higher contribution from EPC business and forex loss
15% 13% 11% 9% 7% 5% 3% Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12

Book-to-bill ratio tapering off: Would coming quarters lift it?

7000 6000 5000 4000 3000 2000 1000 0 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 2.10 1.90 1.70 1.50 1.30 1.10 0.90 0.70 0.50

OPM

PATM

Closing group order Backlog (Rs cr)

Book to bill ratio (x)

Muted order intake position yet again: The order finalisation in the infrastructure sector, especially in large projects where the cost is greater than Rs100 crore, has not yet picked up. The companys current order backlog at the group level stands muted at Rs5,809 crore (down 19% YoY) owing to lack of any large-ticket orders in both, the energy (down 43% YoY) as well as the environment (down 29% YoY) segments. The order inflow during the quarter too was poor at Rs742 crore. In the stand-alone order inflow of Rs590 crore (down 40% YoY), energy contributed Rs386 crore (up 31% YoY) and the environment segment contributed Rs204 crore (down 71% YoY). The power sector accounted for 14% of the order book with the other sectors contributing the rest - chemicals 8%, food processing 7%, pharmaceuticals 6% and the remaining by the cement and petrochemical sector. While order inflows are still showing a downward trend due to the sluggish industrial capital expenditure (capex) cycle, the management indicated that in the last one month there has been some uptick in inquiries from the power sector. The company expects to see more capex activities in power, steel, cement and oil and gas by the end of September 2012.
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Estimates downgraded by 4%: Led by a slowdown in order inflow in recent times, we have marginally cut our revenue assumption. Overall, we have downgraded our estimates by 4% each for FY2012 and FY2013. We are expecting the company to post a compounded annual growth rate (CAGR) of 8.1% in profits over FY2011-13. We also feel that the company could aggressively bid for projects in the coming times to keep its order book ringing though competition is rising. This would adversely affect its margins leading to margin pressure in the coming quarters. However, an expected pick-up in capex activities post-election would augur well for the company. Maintain Hold: The growth in the companys order book remains highly dependent on the momentum in capex cycle of India, making it highly susceptible to swing in investment sentiments. Marred by poor order inflow and tough business environment, the stock has languished in the last one year. However, on a positive note, recent data indicates some revival in the manufacturing sector, auguring well for Thermax and the capital goods sector. At the current market price, the stock trades at 15.1x and 13.8x its FY2012 and FY2013 estimated earnings respectively. Based on revised earnings and target multiple of 14x (past 1
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year average) we have revised our target price to Rs526. In view of limited upside potential we maintain our Hold rating on the stock. The key positive triggers in the stock remain the winning of big ticket size power equipment orders and some relief on margins in view of the recent cooling off of commodity prices.
Valuation Particulars Net sales (Rs cr) % YoY growth Net profit (Rs cr) EPS (Rs) % YoY growth PER (x) P/B (x) EV/EBIDTA (x) RoCE (%) RoNW (%) FY09 3,265 2.3 347 24.1 5.8 21.5 6.4 11.9 60.3 36.1 FY10 3,185 -2.4 256 21.4 -11.2 24.3 5.9 15.1 39.2 24.3 FY11 4,884 53.3 384 32.2 50.2 16.2 4.8 10.3 48.2 29.7 FY12E 5,525 13.1 411 34.5 7.1 15.1 3.9 9.9 40.9 26.0 FY13E 5,865 6.2 448 37.6 9.0 13.8 3.3 9.0 37.0 23.5

PE band
1000 900 800 700 600 500 400 300 200 100 0 Jul-09 Feb-09 May-10 Mar-11 Jan-07 Jun-07 Sep-08 Nov-07 Dec-09 Oct-10 Aug-06 Aug-11 Apr-08 Jan-12

25x 20x 15x 10x

Subsidiaries reported strong results on low base Particulars Group performance Total operating income PBT Tax PAT Margins (%) PBT Margin EAT Tax rate Subsidiaries Total operating income PBT Tax PAT Margins (%) PBT Margin PAT Margin Tax rate 3.5 3.5 -1.3 -2.8 -0.6 78.4 5.0 3.4 31.7 1.6 2.0 -23.0 311 11 0 11 198 -6 -4 -1 -36 -151 3085 -111 250 12 4 8 583 9 -2 12 11.2 7.7 31.1 9.1 6.4 29.0 11.5 7.8 32.1 9.8 6.9 30.2 1372 154 48 106 1467 133 39 94 7 -14 -19 -11 3372 389 125 264 4200 413 125 289 Q3FY11 Q3FY12 % YoY M9FY11 M9FY12

Rs (cr) % YoY 25 6 0 9

9 -1 -2 1

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Andhra Bank
Stock Update

Cannonball

Price target revised to Rs140

Company details Price target: Market cap: 52 week high/low: NSE volume: (No of shares) BSE code: NSE code: Sharekhan code: Free float: (No of shares) Rs140 Rs6,172 cr Rs190/1112 5.6 lakh 532418 ANDHRABANK ANDHRABANK 23.5 cr

Buy; CMP: Rs110

Result highlights Andhra Banks Q3FY2012 results were in line with our estimates as the net profit at Rs303 crore showed a decline of 8.4% year on year (YoY) and 4.1% quarter on quarter (QoQ). The de growth in profits was mainly due to a sharp rise in provisions (80% YoY). The net interest income (NII) growth was slightly higher than our estimates as it grew by 17.1% YoY. The growth in NII was contributed by a sequential growth in advances (6.3% QoQ) and stable net interest margins (NIMs; ie 3.81% in Q3FY2012 vs 3.82% in Q2FY2012). Led by a strong growth in recoveries the asset quality improved on a sequential basis as gross and net non performing assets (NPAs) were at 2.38% and 1.21% respectively compared to 2.67% and 1.48% in Q2FY2012. The bank restructured Rs1,200 crore of advances in Q3FY2012 (outstanding restructured advances at Rs3,676 crore). The non interest income registered a growth of 18.4% YoY and 32.3% QoQ contributed by a growth in fee income (11.9% YoY and 24.7% QoQ). The cost to income ratio declined to 37% from 39.2% in Q2FY2012. Valuations
Promoter 58%

Shareholding pattern
Public & others 14% Foreign 13%

MF & FI 15%

Andhra Banks Q3FY2012 results were characterised by a decline in NPAs aided by sharp increase in the recoveries. The operational performance remained healthy backed by higher NIM and steady growth in advances. We believe sturdy margins and robust recoveries will lower the credit cost in the coming quarters. We expect the earnings of the bank to grow at a compounded annual growth rate (CAGR) of 11.5% (FY2011-13) leading to a return on asset (RoA) of approximately 1.1%.

Price chart
160 145 130 115 100 85 70 Jan-11 Jul-11 Apr-11 Jan-12 Oct-11

Results Particulars Interest earned Interest expense Net interest income Other income Total income Operating expenses - Employee cost - Other costs Operating profit (PPP) Prov for contingencies PBT TAX PAT Q3FY12 2,923.0 1,939.2 983.9 235.3 1,219.1 451.5 284.7 166.8 767.6 309.4 458.2 155.0 303.2 Q3FY11 2,121.5 1,281.7 839.9 198.6 1,038.5 411.9 259.5 152.4 626.6 171.7 454.9 124.0 330.9 % YoY 37.8 51.3 17.1 18.4 17.4 9.6 9.7 9.4 22.5 80.2 0.7 25.0 -8.4 Q2FY12 2,782.5 1,831.3 951.2 177.8 1,129.0 442.3 273.6 168.7 686.8 260.7 426.1 110.0 316.1

Rs (cr) % QoQ 5.0 5.9 3.4 32.3 8.0 2.1 4.1 -1.1 11.8 18.7 7.5 40.9 -4.1

Price performance (%) 1m 3m 6m 12m

Absolute 34.1 Relative 19.2 to Sensex

-8.7 -21.1 -18.3 -8.7 -18.4 -16.5

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Therefore due to improving trends on the asset quality front and attractive valuations (0.7x FY2013 book value [BV]) we revise our target price to Rs140 (0.9x FY2013E earnings). We upgrade the rating on the stock from Hold to Buy. Steady growth in NII, margins remain stable Andhra Banks Q3FY2012 NII expanded by 17.1% YoY (3.4% QoQ), slightly higher than our estimates. The growth in NII was driven by a 6.3% QoQ (20.7% YoY) growth in advances and stable NIMs. The NIM was at 3.81% vs 3.82% in Q2FY2012 as yields expanded by 30bps sequentially (12.75% vs 12.45% in Q2FY2012), which compensated for the rise in cost of deposits. The banks management expects to maintain margins at 3.6% in FY2012 and FY2013. Advances expand 6.3% QoQ driven by corporate advances The advances during the quarter increased by 20.7% YoY (6.3% QoQ) driven by corporate advances which grew 23% YoY (7.2% QoQ). The retail and SME advances registered a growth of 9.1% YoY and 20.6% YoY respectively. The deposits expanded by 20.2% YoY mainly driven by term deposits (23.4% YoY) while the current account savings account (CASA) ratio showed a marginal growth of 40bps to 26.6% on a sequential basis. Asset quality improves on higher recoveries After showing a sharp increase in slippages in Q2FY2012, the bank has contained the slippages at 1.9% annualised while recoveries were robust (at Rs483 crore) in Q3FY2012. This led to a Q-o-Q decline in the gross and net NPAs to 2.38% and 1.21% respectively in Q3FY2012 from 2.67% and 1.48% in Q2FY2012. Given the encouraging recovery trends (recovered Rs157 crore in January 2012), especially from small accounts, the asset quality is likely to stabilise at lower levels. The bank also restructured Rs1,200 crore of

advances during the quarter and the outstanding restructured advances stand at 4.6%. However a relatively higher exposure to the power sector (outstanding exposure at 14% of advances) poses concern on asset quality. Higher provisioning impacted net profits The provision expenses increased by 80% YoY (18.7% QoQ) which contributed to a degrowth in profitability on a Y-oY basis. The higher provisioning was on account of increased provisioning towards restructured advances (approximately Rs150 crore net present value [NPV] hit) while NPA provisions were significantly lower on a sequential basis. Strong growth in non interest income In Q3FY2012 the non interest income grew by 18.4% YoY (32.3% QoQ) mainly driven by a sharp jump in the fee income. The processing fee increased two fold on a Q-oQ basis while commission expanded 12.8% QoQ which led to a strong growth in the fee income. The treasury profits were to the tune of Rs16 crore vs Rs10 crore in Q3FY2012 (Rs23 crore in Q2FY2012). Valuations Andhra Banks Q3FY2012 results were characterised by a decline in NPAs aided by sharp increase in the recoveries. The operational performance remained healthy backed by higher NIM and steady growth in advances. We believe sturdy margins and robust recoveries will lower the credit cost in the coming quarters. We expect the earnings of the bank to grow at a CAGR of 11.5% (FY2011-13) leading to a RoA of approximately 1.1%. Therefore due to improving trends on the asset quality front and attractive valuations (0.7x FY2013 book value [BV]) we revise our target price to Rs140 (0.9x FY2013E earnings). We upgrade the rating on the stock from Hold to Buy.

Trend in NIM
4.1% 3.9% 3.7% 3.5% 3.3% 3.1% 2.9% 2.7% 2.5% Q1 FY10 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q4FY10A Q3 FY12 Q2FY10 Q3FY10 Q1FY11

Advances growth
90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Q1 FY10 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q4FY10A Q3 FY12 Q2FY10 Q3FY10 Q1FY11 12 10 8 6 4 2 0 -2 -4

Advances

Grow th

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Trend in gross and net NPAs

3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Q1 FY10 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q4FY10A Q3 FY12 Q2FY10 Q3FY10 Q1FY11

Cost-income ratio
51.0 49.0 47.0 45.0 43.0 41.0 39.0 37.0 35.0 Q2FY10 Q3FY10 Q1 FY10 Q1FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q4FY10A Q3 FY12

Gross NPA

Net NPA

Financials
Profit & Loss statement Particulars Net interest income Non-interest income Net total income Operating expenses Pre-provisioning profit Provision & contingency PBT Tax PAT Balance sheet Particulars Liabilities Networth Deposits Borrowings Other liabilities & provisions Total liabilities Assets Cash & balances with RBI Balances with banks & money at call Investments Advances Fixed assets Other assets Total assets 4,853 434 16,911 44,139 335 1,796 68,469 6,699 4,469 20,881 56,114 356 1,825 7,184 3,275 24,204 71,435 318 2,485 8,375 3,530 29,049 84,437 365 2,782 9,511 4,317 34,521 98,791 402 4,468 3,647 59,390 1,311 5,432 68,469 4,410 77,688 2,832 8,244 6,493 4,620 10,252 7,594 5,474 11,463 8,796 6,514 12,930 92,156 109,482 130,283 FY09 FY10 FY11 FY12E FY09 1,627 765 2,392 1,104 1,288 390 898 245 653 FY10 2,195 965 3,159 1,350 1,810 374 1,436 390 1,046 FY11 3,221 897 4,118 1,705 2,413 646 1,767 500 1,267 FY12E 3,864 914 4,778 1,813 2,965 982 1,983 545 1,438 (Rs cr) FY13E 4,319 1,011 5,330 2,058 3,272 1,031 2,241 672 1,569 (Rs cr) FY13E Key ratios Particulars Per share data EPS (Fully diluted) DPS BV ABV Spreads (%) Yield on advances Cost of deposits Net interest margins Operating ratios (%) Credit to deposit Cost to income CASA Non interest income / Total income Return ratios (%) RoE RoA Assets/Equity Gross NPA Net NPA Growth Ratios (%) Net interest income PPP PAT Advances Deposits Valuation ratios (%) P/E P/BV P/ABV FY09 13.5 23.2 75.2 73.6 10.8 6.4 2.9 74.3 46.2 31.4 32.0 18.9 1.0 18.1 0.8 0.2 21.4 21.9 13.5 28.9 20.1 8.1 1.5 1.5 FY10 21.6 31.4 90.9 89.0 10.3 5.5 3.1 72.2 42.7 29.4 30.5 26.0 1.3 19.7 0.9 0.2 34.9 40.5 60.1 27.1 30.8 5.1 1.2 1.2 FY11 22.6 36.1 116.0 111.1 10.5 5.4 3.6 77.5 41.4 29.1 21.8 23.2 1.3 18.3 1.4 0.4 46.8 33.3 21.2 27.3 18.6 4.8 0.9 1.0 FY12E 25.7 43.2 135.7 121.9 11.8 6.5 3.6 77.1 37.9 29.8 19.1 20.4 1.2 16.9 2.3 0.9 20.0 22.9 13.5 18.2 18.8 4.3 0.8 0.9 FY13E 28.0 46.5 157.2 146.7 11.6 6.4 3.5 75.8 38.6 30.1 19.0 19.1 1.1 17.1 2.3 0.6 11.8 10.4 9.1 17.0 19.0 3.9 0.7 0.7

90,342 108,901 128,538 152,009

90,342 108,901 128,538 152,009

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Madras Cements
Stock Update

Cannonball

Price target revised to Rs138

Company details Price target: Market cap: 52 week high/low: NSE volume: (No of shares) BSE code: NSE code: Sharekhan code: Free float: (No of shares) Rs138 Rs3,069 cr Rs131/79 1.2 lakh 500260 MADRASCEM MADRASCEM 23.3 cr

Hold; CMP: Rs129

Result highlights Impressive performance; earnings well ahead of estimates: Madras Cements in its Q3FY2012 results delivered an impressive performance and posted an adjusted net profit of Rs76.8 crore (up 76.7% year on year [YoY]) which is well ahead of our as well as the Streets estimates. The impressive performance during the quarter was on account of a healthy growth in its volume as well as average realisation. Further the company has also benefited in terms of a better operating leverage. Strong volume growth and healthy realisation drives revenue growth: The overall revenue of the company increased by 27.9% YoY to Rs741 crore which includes revenue of Rs7.7 crore from the windmill division. The revenue growth during the quarter has been driven by a strong volume growth of 15.9% YoY to 1.72 million tonne on account of stabilisation of its new capacity and increase in average realisation by 11.7% YoY to Rs4,264 per tonne on account of supply discipline followed by the cement manufacturers. The demand environment in the southern region has partially recovered particularly in Tamil Nadu and Kerala. In terms of realisation, the present cement realisation (as in early Q4) has increased by Rs8-10/bag compared to the average of Q3FY2012. Hence in Q4FY2012 also we could see healthy realisation. Margin expansion due to increase in realisation: The operating profit margin (OPM) expanded by 243 basis points YoY to 28%. The expansion in the OPM is on account of increase in the realisation by 11.7%. However, cost pressure has partially offset the benefit arising from increase in realisation. During the quarter

Shareholding pattern
Institutions 21% Promoters 42%

Foreign 8%

Public & others 29%

Price chart
140 130 120 110 100 90 80 70 Jul-11 Jan-11 Apr-11 Jan-12 Oct-11

Results Particulars Net sales Total expenditure Operating profits Other income EBIDTA Interest PBDT Depreciation PBT Tax Reported profit after tax Adjusted PAT Margins (%) OPMs PAT Tax rate 28.0 10.4 32.3 25.6 7.5 33.2 Q3FY12 741.0 533.6 207.5 4.8 212.3 37.4 174.9 61.3 113.6 36.7 76.8 76.8 Q3FY11 579.2 431.1 148.1 6.2 154.3 35.0 119.3 54.2 65.1 21.6 43.5 43.5 % YoY 27.9 23.8 40.1 -22.6 37.6 6.9 46.6 13.1 74.4 69.8 76.7 76.7

Rs (cr) % QoQ -9.5 -3.3 -22.4 -49.7 -23.3 -12.2 -25.3 -1.9 -33.9 -39.3 -31.1 -30.9

Price performance (%) 1m 3m 19.1 19.1 6m 12m 39.7 44.5 38.4 41.5

Absolute 22.2 Relative to Sensex 8.6

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13 February 03, 2012

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freight cost increased by 18.8% on a per tonne basis and other expenses increased by 43.1% to Rs103.8 crore. Further, a loss in the windmill division to the tune of Rs6.7 crore at the profit before interest and tax (PBIT) level has also limit expansion in the overall OPM. Hence the overall cost of production has increased by 6.8% YoY on a per tonne basis. The EBDITA per tonne for the quarter increased by 27.2% YoY to Rs1,161. Upgrading earnings estimates for FY2012 & FY2013: We are upgrading our earnings estimates for FY2012 and FY2013, mainly to factor in higher than expected cement realisation. We also factor higher than expected freight costs. The revised earning per share (EPS) for FY2012 now stands Rs14.9 and for FY2013 we estimate the EPS to be Rs16.3. Maintain Hold with revised price target of Rs138: In spite of an unfavorable demand supply scenario in the southern region there is a sharp price hike witnessed on account of supply discipline followed by the manufacturers. However, the cement offtake in the region has partially recovered in Q3FY2012. Going ahead we expect cement offtake in the region to improve in a gradual manner. However, a failure to adhere to supply discipline will be a key concern on the cement realisation and the profitability of the company. Hence we maintain our Hold recommendation with a revised price target of Rs138 (valued at enterprise value [EV]/tonne of $85). However, in the longer run we believe Madras Cements holds the potential to deliver returns to investors due to its operational efficiency. At the current market price the stock trades at a price earnings (PE) of 7.9x and EV/EBITDA of 5.2x its FY2013 estimated earnings.
Per tonne analysis Particulars Volume Realisation Cost break up RM Stock adjustements Total RM Employee expense Power & fuel Transportation & handling Other expenses Total expenditure per tonne EBDITA per tonne 597 (113) 484 288 1,001 643 489 2,905 913 616 43 659 199 950 708 433 2,948 942 Q3FY11 1,484,000 3,818 Q4FY11 1,752,410 3,889

Correlation between cement realisation & EBDITA/tonne

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 1,400 1,200 1,000 800 600 400 200 -

Realis ation/tonne

EBDITA /tonne

Segmental performance Cement division For the quarter, the companys cement sales volume increased by 15.9% YoY to 1.72 million metric tonne (MMT) due to the stabilisation of its new capacity. On the other hand, the average realisation during the quarter has increased by 11.7% to Rs4,264 per tonne. The demand in the southern region has partially recovered particularly in Tamil Nadu and Kerala. Going ahead we expect cement offtake in the region to see a gradual improvement. With the support of increase in realisation and volume, the revenue from the cement division increased by 29.4% to Rs733.3 crore. The PBIT margin of the division expanded to 24.2% as compared to 21.2% a year ago on account of increase in realisation. Consequently, the PBIT of the division has increased by 47.6% YoY to Rs177.5 crore. Further in the month of January 2012, cement prices have increased across the country by Rs10-15 per bag. Hence in Q4FY2012 we could see a healthy realisation.

Q1FY12 1,740,000 4,207 547 131 678 239 938 673 459 2,988 1,220

Q2FY12 1,770,000 4,346 625 (70) 555 242 1,045 718 557 3,118 1,229

Q3FY12 1,720,000 4,264 602 (145) 457 250 1,027 764 603 3,102 1,161

% YoY 15.9 11.7 0.7 28.2 -5.6 -12.9 2.6 18.8 23.5 6.8 27.2

% QoQ -2.8 -1.9 -3.7 107.7 -17.7 3.3 -1.7 6.4 8.3 -0.5 -5.5

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Wind power division The revenue from the wind power division of the company has declined to Rs7.7 crore as compared to Rs12.6 crore in the corresponding quarter of the previous year. At the PBIT level the company has posted a loss to the tune of Rs6.8 crore as compared to a loss of Rs0.5 crore in the corresponding quarter of the previous year. The performance of the windmill division has been affected due to unfavorable season during the quarter.
Segmental performance Particulars Revenue Cement Wind power Total Less: Inter seg revenue Net segment revenue Segment results Cement Wind power Total PBIT Margins (%) Cement Wind power 24.2 -88.7 21.2 -4.1 3.0 177.5 -6.8 170.7 120.3 -0.5 119.8 47.6 1239.2 42.5 -8.2 -119.9 -25.0 733.3 7.7 741.0 10.5 730.5 566.6 12.6 579.2 16.1 563.1 29.4 -38.8 27.9 -34.7 29.7 -4.7 -84.5 -9.5 -17.3 -9.4 Q3FY12 Q3FY11 % YoY % QoQ

up at Ariyalur (of which 40MW has already been commissioned and the balance 20MW is expected to be commissioned in the near term) and a 25MW thermal power plant is to be set up at R R Nagar. The above capex will be met from a mix of internal accruals and borrowings. Valuation We are upgrading our earnings estimates for FY2012 and FY2013, mainly to factor in higher than expected cement realisation. We also factor higher than expected freight costs. The revised EPS for FY2012 now stands Rs14.9 and for FY2013 we estimate the EPS to be Rs16.3. In spite of an unfavorable demand supply scenario in the southern region there is a sharp price hike witnessed on account of supply discipline followed by the manufacturers. However, the cement offtake in the region has partially recovered in Q3FY2012. Going ahead we expect cement offtake in the region to improve in a gradual manner. However, a failure to adhere to supply discipline will be a key concern on the cement realisation and the profitability of the company. Hence we maintain our Hold recommendation with a revised price target of Rs138 (valued at EV/tonne of $85). However, in the longer run we believe Madras Cements holds the potential to deliver returns to investors due to its operational efficiency. At the current market price the stock trades at a PE of 7.9x and EV/EBITDA of 5.2x its FY2013 estimated earnings.
Valuation Particulars Net sales (Rs cr) Growth (%) EBDITA (Rs cr) EBDITA margin (%) Adjusted PAT (Rs cr) Growth (%) EPS diluted (Rs) PE (x) P/BV (x) EV/EBDITA (x) EV/sales (x) RoE (%) RoCE (%) FY09 2,456 22 778 32 364 -11 15.3 8.4 2.4 6.9 2.2 33 12 FY10 2,801 14 857 31 354 -3 14.9 8.7 2.0 6.4 2.0 25 10 FY11 2,605 -7 617 24 211 -40 8.9 14.6 1.8 9.3 2.2 13 7 FY12E 3,124 20 925 30 356 69 14.9 8.6 1.5 6.0 1.8 19 9 FY13E 3,383 8 972 29 388 9 16.3 7.9 1.3 5.2 1.5 18 9

Capacity expansion update During the current fiscal the company has commissioned a cement plant with a capacity of 2mtpa at Ariyalur, Tamil Nadu. The capital expenditure (capex) for the same is around Rs630 crore. With the commissioning of the new capacity the overall cement capacity of the company has enhanced to 12.5mtpa from 10.5mtpa. The company is installing roll press for increasing cement grinding capacity from the present level of 210TPH to 260TPH at a cost of Rs60 crore. The project is expected to get commissioned in March 2012. Further the grinding capacity at Salem is also expected to increase from 90TPH to 230TPH at a cost of Rs60 crore. To overcome the issue of power shortage in Tamil Nadu and to control the power cost, the company is setting up captive thermal power plants at the Ariyalur and R R Nagar plants to meet the energy requirements. As per the plan, a 60MW thermal power plant is to be set

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15 February 03, 2012

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Cement
Sector Update

Seasonal pick-up in demand

Key points Cumulative volume for pan India players grew by 8.6%: The volume growth of the top three domestic cement players - ACC, Ambuja Cements and Ultratech Cement (Ultratech) for the month of January 2012 was impressive on a year-on-year (Y-o-Y) basis on account of a pick-up in cement offtake in the north, west and the eastern region due to a pick-up in the execution in infrastructure projects. Among the large players Ultratech took lead and posted an impressive dispatches growth of 11.2% YoY. On the other hand ACC and Ambuja Cements posted a growth of 8.8% and 3.8% respectively in their dispatches. Hence, cumulatively, the pan India players have registered an 8.6% volume growth. On a sequential basis (compared to December 2011) the cumulative dispatches of the pan India players have increased by 3.1%. Cement offtake picked up in north, west & central regions; partial recovery in southern region: In terms of demand, dealers have confirmed that the cement offtake in most parts of the country has shown signs of recovery in the past couple of months due to post monsoon pick-up in infrastructure activity. Further, demand in the southern region during January 2012 has partially recovered. Going ahead dealers expect momentum in demand to continue for the coming couple of months. Cement prices increased in most parts of the country: Cement prices have increased in January in the range of Rs5-12/bag of 50kg in most parts of the country. The eastern region has witnessed the highest price hike on a month-on-month (M-o-M) basis whereas in the southern region prices have remained largely unchanged sequentially. The price hike has been largely driven by a revival in the cement offtake. Further, dealers are of the view that the cement price may increase further in the near term as cement offtake is expected to be strong going ahead. Outlook-Maintain bullish stance on Grasim & Orient Paper: The cement sector has outperformed the broader market in recent times due to positives such as a recovery in the cement offtake and strong realisations. However with a pick-up in cement offtake, the supply discipline may break which can put pressure on cement prices going ahead. Hence we maintain our neutral stand on the sector but we are selectively positive and prefer Grasim Industries (Grasim) in the large size space and Orient Paper & Industries (Orient Paper) in the mid size space.
Player-wise dispatches (in million tonne) Particulars ACC Ultratech Ambuja Cements Total PAN India players Jan-12 2.2 3.7 1.9 7.9 Jan-11 2.1 3.3 1.8 7.2 % YoY 8.8 11.2 3.8 8.6 Dec-11 2.1 3.6 1.9 7.6 % MoM 6.7 2.8 0.0 3.1

ACC: Volume grew by 8.8% YoY ACCs dispatches for January 2012 increased by 8.8% to 2.1MMT compared with that in January 2011. The production for the month increased by 9.2% YoY to 2.3MMT. On a M-o-M basis the company has registered a 6.7% growth in its dispatches. Going ahead we expect the momentum in volume growth to sustain on account of stabilisation of its new capacities at Bargarh and Chanda, which have been commissioned in the last one year. Ultratech: takes the lead with volume growth of 11.2% YoY Ultratechs dispatches for the month of January 2012 stood at 3.7 million tonne which is a growth of 11.2% on a Y-oY basis. The double digit growth is largely on account of a pick-up in demand in the west, east and northern regions. The company has posted the highest volume growth compared to other large players like ACC and Ambuja Cements. Further, on a M-o-M basis the company has posted a 2.8% growth in its dispatches. The combined capacity currently stands at 52.75MTPA. Ambuja Cements: Posted lowest volume growth among the large players Ambuja Cements has posted the lowest volume growth compared to other large players like ACC and Ultratech. During the month the company has registered a volume growth of 3.8% to 1.9 million tonne. The production during the month has increased by 3.3%. On a sequential basis

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(compared to December 2011) the dispatches of the company remained flat. The capacity for the month has increased to 27MTPA as compared to 18.5MTPA in the previous year. We expect the company to post a sequential improvement in its volume in the coming couple of months. Cement price update Price hikes undertaken in January, likely to sustain in the near term Cement prices during the month of January have increased in the range of Rs5-12/bag of 50kg in most parts of the country. The eastern region has witnessed the highest price hike on a M-o-M basis whereas the cement price in the southern region has remained largely unchanged sequentially. The price hike has been largely driven by a revival in the cement offtake. Further, dealers are of the view that the cement price may further increase in the near term as cement offtake is expected to be strong going ahead. As per our recent channel check the cement prices in Mumbai and the other cities of Maharashtra have increased by Rs10/bag during January 2012. The present average cement price in the city currently quotes in the range of Rs290-295/bag. Further in Gujarat also there are signs of improvement in the cement offtake due to support from government infrastructure projects. Cement prices in Kolkata witnessed a couple of hikes during January 2012. Almost all the companies have increased prices in the cities and nearby areas. The revised average price in Kolkata stood at Rs330-335/ bag. Further dealers are of the view that prices could come under pressure in the near term as builders are finding it difficult to purchase at the current levels. On the supply side, players like Lafarge and ACC have increased supplies in the city and nearby areas. In the southern region Hyderabad continued to witness sluggish demand. But cement offtake has partially recovered in the other areas of Andhra Pradesh. The

cement price in Hyderabad has remained unchanged on a M-o-M basis and is currently quoting in the range of Rs280-285/bag. The cement manufacturers have cut down production levels to maintain the prices. The mid sized players like Rain Commodities, India Cements, Madras Cements and Dalmia Cement are selling cement at around Rs260-265/bag. As per the dealers the cement offtake in Hyderabad is expected to be lackluster going ahead in the absence of any major infrastructure project by the state government. In the other states of the southern region like Kerala and Tamil Nadu the demand environment is relatively better. In Chennai the prices have increased by Rs12/ bag and are quoting at Rs285-290/bag. Further, the cement offtake in the major cities of Gujarat like Baroda, Surat, Ahmedabad and Mehsana has picked up during the month due to support from government infrastructure projects and rural demand. The price has increased by Rs10-15/bag during the month of January 2012 and the current average price in the major cities of the state stands at Rs250-260/ bag. As per dealers, the price of cement is expected to increase in the near term.
Cement price trend in major cities
370 320 270 220 170 120 Feb-10 Feb-11 Jun-10 Jun-11 Dec-09 Dec-10 Aug-09 Aug-10 Aug-11 Dec-11 Oct-09 Oct-10 Apr-10 Apr-11 Oct-11

Mumbai

Delhi

Kolkata

Chennai

Hyderabad

Source: Cement dealers

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Sharekhan

18

February 03, 2012

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