4QFY2012 Result Update | Cement

April 26, 2012

India Cements
Performance Highlights
Y/E Mar (` cr) Net revenue Operating profit OPM (%) Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
3QFY12 944 197 20.9 56 % chg qoq 18.5 10.5 (140)bp 15 4QFY11 % chg yoy 1,000 181 18.1 55 11.8 20.3 137bp 17.5

`85 -

4QFY12 1,118 218 19.5 65

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Cement 2,617 1.1 119/62 145,725 10 17,131 5,189 ICMN.BO ICEM@IN

For 4QFY2012, India Cements (ICEM) registered 17.5% yoy growth in its net profit to `65cr, primarily because of superior realization. The companys net plant realization rose by 12.0% yoy to `3,465/tonne. We remain Neutral on the stock. Higher yoy realization drives up OPM by 137bp yoy: During the quarter, ICEM registered 11.8% yoy growth in its standalone top line to `1,118cr. Top-line growth was driven by higher realization as the companys volumes remained flat at 2.52mn tonnes on a yoy basis (2.53mn tonnes) despite the 9% increase recorded by the southern region, the companys primary market. Higher realization for the quarter offset the increase in power and fuel and freight costs. The companys variable cost per tonne rose by 15% yoy to `2,025. Further, during the quarter, the companys employee costs rose by 37.4% yoy due to provisions for directors remuneration of `11cr and leave salary of `10cr. ICEMs bottom line during the quarter was boosted by `6cr of forex gain and higher other income. Outlook and valuation: We expect ICEM to post a bottom-line CAGR of 8.6% over FY2012-14E. The companys return ratios would remain subdued due to substantial investments in subsidiaries. At the CMP, though the stock is trading at low valuations of EV/tonne of US$56 on FY2013E capacity, we believe this is justified considering the company's unfavorable locational presence. The southern region is currently facing twin problems of poor demand and excess capacity. Hence, we maintain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 25.8 15.9 33.6 24.7

Abs. (%) Sensex ICEM

3m

1yr

3yr 51.2 (31.4)

0.3 (12.4) 4.8 (17.2)

Key Financials (Standalone)

Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) OPM (%) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/Tonne (US $) EV/EBITDA (x)
Source: Company, Angel research

FY2011

FY2012

FY2013E

FY2014E

3,417 (7.3) 68 (80.8) 1.3 10.2 65.3 0.8 1.2 1.7 0.9 47 8.6

4,075 19.3 293 330.6 9.7 19.0 8.8 0.8 8.6 8.8 1.0 55 5.4

4,363 7.1 284 (3.1) 9.2 18.9 9.2 0.7 8.1 8.8 1.0 59 5.4

4,790 9.8 350 23.1 11.4 19.1 7.5 0.7 9.5 9.4 0.9 56 4.8 V Srinivasan
022-39357800 v.srinivasan@angelbroking.com

Please refer to important disclosures at the end of this report

India Cements | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance (Standalone)

Y/E March (` cr) Net Revenue Net Raw-Material Costs (% of Sales) Power & Fuel (% of Sales) Staff Costs (% of Sales) Freight & Forwarding (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) EPS (`)
Source: Company, Angel Research

4QFY12 1,118 148 13.2 317 28.4 92 8.2 212 19.0 131 11.7 901 218 19.5 64 65 4 94 29 30.6 65 5.8 2

3QFY12 944 114 10.2 267 23.9 71 6.3 171 15.3 124 11.1 747 197 20.9 75 62 2 62 6 9.2 56 6.0 2

% chg qoq 18.5 29.6 18.9 29.9 23.9 5.9 20.6 10.5 (140bp) (14.6) 3.9 107.9 50.9 403.3 15.3 (0.2) 15.3

4QFY11 1,000 172 15.4 251 22.4 67 6.0 188 16.8 141 12.6 819 181 18.1 43 62 1 77 22 28.3 55 5.5 2

% chg yoy 11.8 (13.9) 26.6 37.4 12.8 (7.3) 10.0 20.3 137bp 47.6 5.0 325.7 21.2 30.7 17.5 0.3 17.5

Exhibit 2: Financial performance

(` cr) 1,200 1,000 800 600 400 200 0 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 21 55 102 70 56 65 0 784 1,000 Net revenue (LHS) 1,061 Net Profit (LHS) 1,092 944 30 20 10 OPM (RHS) 1,118 (%) 40

Source: Company, Angel Research

April 26, 2012

India Cements | 4QFY2012 Result Update

Exhibit 3: 4QFY2012 Actual vs. Angel estimates

(` cr) Net revenue Operating profit OPM (%) Reported net profit
Source: Company, Angel Research

Actual
1,118 218 19.5 65

Estimates
1,109 233 21.0 70

Variation (%)
0.8 (6.6) (154bp) (7.8)

Operating performance
During the quarter, ICEM sold 2.53mn tonnes of cement, registering a flat performance on the volume front. The companys performance on the volume front lagged the 9% demand growth reported by the southern region for the quarter. Healthy performance of the southern region followed the dismal 3% decline reported by the region for 9MFY2012. However, net realization improved substantially by 13.9% yoy to `4,376/tonne, aided by demand pick-up. Importantly net plant realization (NPR) rose by 12% yoy to `3,465/tonne. However, on a sequential basis, NPR remained flat as the company had longer lead distance due to dispatches to the eastern and western regions and certain restrictions by railways in moving goods to southern markets. Raw-material cost per tonne rose by 11.1% yoy to `586. Power and fuel cost per tonne stood at `1,256, up 26.8% yoy. The company indicated that its imported coal usage stood at 60% of the overall coal usage and the cost of imported coal in INR terms rose to `7,400/tonne from `6,900 in 4QFY2011. Freight cost per tonne grew by 13.0% yoy to `838 due to increased costs of petroleum products and higher railway freight charges. Operating profit per tonne of cement grew by 22.3% yoy to `852 during 4QFY2012. However, it was down by 2.6% on a yoy basis.
Exhibit 4: Per tonne analysis Particulars (`/tonne) Net Realization/tonne Net Plant Realization/tonne Raw-Material Cost/tonne Power and Fuel Cost/tonne Freight Cost/tonne Other Cost/tonne Operating Profit/tonne Source: Company, Angel Research 4QFY12 3QFY12 4QFY11 4,376 3,465 586 1,256 838 519 852 4,262 3,461 585 1,224 785 568 875 3,842 3,095 528 990 742 558 697 yoy chg (%) 13.9 12.0 11.1 26.8 13.0 (7.1) 22.3 qoq chg (%) 2.7 0.1 0.2 2.6 6.8 (8.6) (2.6)

ICEMs subsidiary, Trinetra Cement (Trinetra) owns a 1.5mtpa plant at Mahi, Rajasthan. Trinetra dispatched 0.3mn tonnes of cement in 4QFY2012 as against 0.27mn tonnes in 4QFY2011.

April 26, 2012

India Cements | 4QFY2012 Result Update

Performance of other divisions

The IPL franchise, the shipping business and the windmill division posted revenue of `0.2cr, `11.4cr and `0.7cr, respectively, during the quarter. On the operating front, the IPL franchise posted EBITDA loss of `1.8cr, while the windmill division and the shipping business reported EBITDA of `0.7cr and `3.4cr respectively, during the quarter.

Capacity expansions firmly on track

ICEM has planned a total capex of `550cr over the next two years, which would be primarily incurred towards setting up captive power plants (CPP) in Andhra Pradesh (AP) and Tamil Nadu (TN) and coal concession mines in Indonesia. The planned cost for the AP and TN CPPs is ~`250cr each. The first 25MW of the companys 50MW CPP in Tamil Nadu situated at Sankar Nagar has commenced operations and has stabilized at 100%. The second unit is expected to commence operations shortly. The company has also paid advances for setting up the 50MW CPP in AP, which is expected to commence operations in 4QFY2013. Use of captive power in place of grid power is expected to save the company `1-1.5/unit of electricity consumed. Management expects savings to be higher when it starts using its own captive coal from Indonesian mines.

Conference call highlights

During 4QFY2012, cement demand in AP, TN, Karnataka and Kerala rose by 2.1%, 12.6%, 10.8% and 11.8%, respectively. The company indicated that cement demand in AP picked up due to government spending on housing and road projects. ICEM also indicated that prices in 1QFYFY2013 are currently trading at higher levels than 4QFY2012 levels. Prices in Hyderabad, Bangalore, Chennai and Kerala are at `27-280/bag, `320/bag, `330/bag and `355/bag, respectively. The company has all the approvals in place for commencing mining in its Indonesian mines. Road construction was completed during this quarter, while bridge construction is in final stages and is expected to be completed by mid-May. Thereafter, the company expects to start mining and the shipment of coal will follow a few months later. The company indicated that coal from its Indonesian mines would be used for generating captive power. During the quarter, Coromandel Electric became a subsidiary of ICEM, after the merger of the former with one of the subsidiaries of ICEM. The company has been getting power supply from Coromandel Electric over the past 6-7 years.

April 26, 2012

India Cements | 4QFY2012 Result Update

Recommendation rationale
Worst plant locations compared to all companies in our coverage universe: About 93% of ICEMs consolidated total capacity is located in TN, AP and Rajasthan. As per our estimates, for FY2013E, capacity situation in TN is expected to be slightly better than the other two, as a large part of its excess of 18.1mt can be supplied to Kerala (where the total deficit is expected to be 8.6mt). However, AP is expected to have India's highest indigenous demand supply gap (42mt) and no nearby supply-deficit state to sell its excess more economically than other states. Further, Rajasthan's net demand supply gap is expected to be huge at 16.4mt, even after factoring in supplies of 16.6mt to nearby supply-deficit states (Punjab, Haryana, Chandigarh, NCR and UP). Capacities in all these states are expected to witness prolonged utilization and margin pressures. Large capex burden: As of FY2011, ICEM had invested `1,040cr (17.5% of gross block) in CWIP, which is not expected to result in creation of any additional cement capacities in the near future as the amount has been utilized by the company in acquiring limestone-bearing lands and railway sidings (as per management's guidance) and, hence, the company's return ratios for the next few years are expected to remain subdued.

Outlook and valuation

We expect ICEM to post a bottom-line CAGR of 8.6% over FY2012-14E. The companys return ratios would remain subdued due to substantial investments in subsidiaries. At the CMP, though the stock is trading at low valuations of EV/tonne of US$56 on FY2013E capacity, we believe this is justified considering the company's unfavorable locational presence. The southern region is currently facing twin problems of poor demand and excess capacity. Hence, we maintain our Neutral recommendation on the stock.

Exhibit 5: Change in estimates

(` cr) Earlier Net Sales Operating Exp Operating Profit Depreciation Interest PBT Tax PAT
4,423 3,617 806 263 304 433 130 303

FY2013E Revised
4,363 3,540 823 265 311 406 122 284

FY2014E Var (%)

(1.4) (2.1) 2.2 0.7 2.3 (6.3) (6.3) (6.3)

Earlier
4,906 3,983 923 277 297 555 167 389

Revised
4,790 3,877 914 278 306 500 150 350

Var (%)
(2.4) (2.7) (1.0) 0.5 3.0 (10.0) (10.0) (10.0)

Source: Company, Angel Research

April 26, 2012

India Cements | 4QFY2012 Result Update

Exhibit 6: Key assumptions

Earlier Estimates FY13E Installed capacity Cement (mtpa) Dispatch growth (%) Realization growth (%)
Source: Company, Angel Research

Revised Estimates FY13E 14.1 9 2 FY14E 14.1 8 2

FY14E 14.1 6 2

14.1 9 0

Exhibit 7: One-year forward EV/tonne

120,000 100,000 EV/tonne $40 $60 $80 $100

EV (` mn)

80,000 60,000 40,000 20,000 0

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Oct-01

Oct-02

Oct-03

Oct-04

Oct-05

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Source: BSE, Company, Angel Research

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Cement Madras Cements Shree Cement UltraTech Reco. Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`)
1,216 151 85 66 146 2,749 1,431

Tgt. price (`)

79 -

Upside (%)
20 -

FY2014E P/BV (x)

2.7 2.6 0.7 0.5 1.3 3.1 2.3

FY2014E P/E (x)

15.0 14.3 7.5 4.0 8.1 15.1 13.7

FY2012-14E EPS CAGR (%)

7.3 13.7 8.6 21.5 4.7 65.4 8.3

FY2014E RoCE (%)

23.3 22.2 9.4 11.1 14.4 19.7 17.6

FY2014E RoE (%)

19.0 19.4 9.5 14.3 16.9 22.2 17.9

Source: Company, Angel Research; Note: *Y/E December

April 26, 2012

Oct-11

Apr-12

India Cements | 4QFY2012 Result Update

Profit and loss statement standalone

Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& amortization EBIT % chg (% of Net Sales) Interest & other charges Other Income (% of PBT) Recurring PBT % chg Extraordinary expense/(inc.) PBT (reported) Tax (% of PBT) PAT (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
3,359 9.9 2,432 357 891 198 986 927 (15.1) 27.6 203 724 (25.0) 21.6 112 115 17.8 727 (17.6) 79 648 216 33.4 432 511 (24.3) 15.2 18.1 18.1 (24.5) 3,687 9.8 2,945 480 999 250 1,215 743 (19.9) 20.1 233 509 (29.7) 13.8 143 121 22.8 488 (32.9) (44) 531 177 33.3 354 311 (39.2) 8.4 10.1 10.1 (44.1) 3,417 (7.3) 3,067 505 1,020 253 1,289 350 (52.9) 10.2 244 106 (79.2) 3.1 142 98 108.5 62 (87.3) (28) 90 22 24.2 68 40 (87.1) 1.2 1.3 1.3 (87.1) 4,075 19.3 3,300 544 1,095 303 1,359 775 121.4 19.0 251 524 394.0 12.9 287 148 38.7 385 522.2 4 381 88 23.1 293 297 640.6 7.3 9.7 9.7 640.6 4,363 7.1 3,540 589 1,114 318 1,519 823 6.2 18.9 265 558 6.6 12.8 311 159 39.1 406 5.5 406 122 30.0 284 284 (4.2) 6.5 9.2 9.2 (4.2) 4,790 9.8 3,877 653 1,208 334 1,682 914 11.0 19.1 278 635 13.8 13.3 306 170 34.1 500 23.2 500 150 30.0 350 350 23.2 7.3 11.4 11.4 23.2

April 26, 2012

India Cements | 4QFY2012 Result Update

Balance sheet standalone

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets
5,314 1,505 3,808 904 159 2,144 85 1,313 745 1,153 990 14 5,875 5,710 1,792 3,919 703 314 2,645 54 1,869 722 1,042 1,602 6,538 5,175 2,092 3,083 1,040 2,697 1,118 33 313 772 2,074 (955) 5,865 6,474 2,343 4,131 145 2,768 1,206 3 457 747 2,140 (934) 6,110 6,824 2,608 4,216 145 2,518 1,560 115 457 988 1,787 (227) 6,652 7,174 2,886 4,288 145 2,518 1,712 171 457 1,085 1,836 (124) 6,827 282 3,349 3,631 1,988 256 5,875 307 3,829 4,136 2,133 269 6,538 307 3,783 4,090 1,501 274 5,865 307 3,760 4,068 1,718 325 6,110 307 3,903 4,210 2,118 325 6,652 307 4,078 4,385 2,118 325 6,827

FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

Note: FY11 and FY12 balance sheet numbers as per revised schedule VI

Cash flow statement - standalone

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decin Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E
648 203 (165) 115 216 355 (934) (30) 115 (848) 5 177 66 (37) 153 (340) 426 85 531 233 (644) 121 177 (177) (195) (155) 121 (229) 284 145 72 (18) 375 (31) 85 54 90 244 (204) 98 22 11 (553) 154 98 (302) 323 54 (0) 270 (21) 54 33 381 251 (51) 148 88 346 (404) (71) 148 (328) 217 147 119 (48) (30) 33 3 406 265 (594) 159 122 (204) (350) 250 159 59 400 142 258 113 3 115 500 278 (48) 170 150 410 (350) 170 (180) 175 (175) 55 115 171

April 26, 2012

India Cements | 4QFY2012 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.)
0.5 2.0 6.5 0.5 2.8 3.6 0.4 4.2 0.7 0.4 2.2 1.8 0.5 2.4 1.8 0.4 2.1 2.1 0.7 38 36 160 89 0.7 40 30 136 121 0.6 50 27 185 30 0.7 46 21 233 (86) 0.7 46 26 203 (54) 0.7 46 33 171 (24) 12.9 15.7 18.4 8.2 9.6 9.7 1.7 2.0 1.2 8.8 9.8 8.6 8.8 9.1 8.1 9.4 9.9 9.5 21.6 66.6 0.6 9.0 3.9 0.5 11.8 13.8 66.7 0.6 5.5 4.6 0.5 6.0 3.1 75.8 0.6 1.3 5.9 0.4 (0.7) 12.9 76.9 0.7 6.8 13.7 0.4 4.0 12.8 70.0 0.7 6.2 11.4 0.5 3.8 13.3 70.0 0.7 6.7 10.1 0.5 5.1 18.1 18.1 22.5 2.3 105.0 10.1 10.1 19.1 2.3 113.0 1.3 1.3 10.2 1.7 113.4 9.7 9.7 17.7 4.8 112.6 9.3 9.3 17.9 4.6 117.3 11.4 11.4 20.5 5.7 123.0

FY2009 FY2010 FY2011 FY2012

FY2013E

FY2014E

4.7 3.8 0.8 2.7 1.0 3.8 0.6

8.4 4.5 0.8 2.7 1.1 5.3 0.6

65.3 8.4 0.8 2.0 0.9 8.6 0.5

8.8 4.8 0.8 5.6 1.0 5.4 0.7

9.2 4.8 0.7 5.4 1.0 5.4 0.7

7.5 4.2 0.7 6.7 0.9 4.8 0.6

April 26, 2012

India Cements | 4QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

India Cements No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

April 26, 2012

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