1QCY2012 Result Update| Construction

May 14, 2012

ITD Cementation India

Performance highlights
Y/E December (` cr) Total operating income Operating profit OPM (%) Adj. PAT 1QCY12 384 49 12.8 12 4QCY11 327 44 13.5 12 % chg (qoq) 17.6 11.4 (71)bp (3.4) 1QCY11 344 27 7.9 4 % chg (yoy) 11.5 81.3 492bp 204.2

BUY
CMP Target Price
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 Construction 215 0.6 202 / 111 2,386 10 16,216 4,908 ITCM.BO ITCE@IN

`186 `236
12 Months

ITD Cementation (standalone) reported a strong set of numbers for 1QCY2012. The companys revenue grew by 11.5% yoy to `384cr and its profit soared by 204% yoy to `12cr. Completion of the low-profit NH1 road projects helped the company to expand its margins. We are revising our estimates to factor in the companys 1QCY2012 performance. We maintain our Buy view on the stock.

Strong order book to drive revenue

The companys order book stood at `3,600cr as of April 2012, with government and private order ratio of 60:40. We expect the companys revenue to post a CAGR of 20% to `1,842cr, driven by strong order inflow worth `1,200cr in the first four months of CY2012E as compared to `1,132cr in CY2011.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 69.6 4.4 0.5 25.5

Interest cost reduction to drive bottom line

Interest cost for the company was as high as 14.6% in CY2011. However, the company expects interest rates to decline from 2HCY2012. With the recent cut in repo rate by 50bp by the RBI, it is expected that interest rates will see a downward trend. We expect interest cost to decline to 14.2%, which will directly add to the companys bottom line, which is expected to be `44cr in CY2013E.

Abs.(%) Sensex ITC Cementation

3m 17.0

1yr (3.0)

3yr 36.6 53.8

Outlook and valuation

We expect ITD Cementations revenue to post a CAGR of 20% to `1,842cr and profit to post a CAGR of 40% to `44cr over CY2011-13E. At the CMP of `186, the stock is trading at PBV of 0.5x CY2013E. We remain positive on the stock with a Buy view and a target price of `236 and a target PBV of 0.6x for CY2013E. Key financials (Standalone)
Y/E Dec. (` cr) Net sales % chg Adj. net profit % chg OPM (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) CY2008 958 22.2 (3) (141.8) 6.2 (2.6) (70.6) 0.6 (0.9) 5.1 0.6 10.2 CY2009 973 1.5 5 275.0 9.5 4.6 40.3 0.6 1.5 7.2 0.7 7.3 CY2010 1,057 8.7 9 72.0 9.2 7.9 23.5 0.6 2.6 7.5 0.6 6.9 CY2011 1,283 21.4 23 146.2 10.6 19.6 9.5 0.6 6.1 10.0 0.6 5.8 CY2012E 1,535 19.7 31 39.5 11.1 27.3 6.8 0.5 7.9 11.8 0.6 5.1 CY2013E 1,842 20.0 44 40.3 11.1 38.3 4.9 0.5 10.2 12.8 0.5 4.8

(9.1) (11.6)

Tejashwini Kumari
022-39357800 Ext: 6856 tejashwini.kumari@angelbroking.com

Source: Company, Angel Research

Please refer to important disclosures at the end of this report

ITD Cementation India | 1QCY2012 Result Update

Exhibit 1: 1QCY2012 performance (Standalone)

Y/E March (` cr) Total operating income Net raw material (% of Sales) Employee cost (% of Sales) Other Expenses (% of Sales) Total expenditure Operating profit OPM (%) Interest Depreciation Other income PBT (% of Sales) Tax (% of PBT) Reported PAT PATM (%)
Source: Company, Angel Research 1QCY12 384 148 38.6 33 8.7 153 39.9 335 49 12.8 27 8 2 16 4.1 4 23.8 12 3.1 4QCY12 327 107 32.8 33 10.2 142 43.5 282 44 13.5 26 9 (2) 7 2.1 (5.36) (76.4) 12 3.8 (3.4) (169.8) 18.6 11.4 (71)bp 2.1 (8.9) 193.3 123.6 7.8 0.3 % chg. (qoq) 17.6 38.5 1QCY11 344 124 36.1 29 8.4 164 47.6 317 27 7.9 20.27 7.17 6.08 6 1.7 1.81 31.5 4 1.1 204.2 106.6 5.6 81.3 492bp 31.4 17.5 (73.1) 173.4 (6.4) 14.8 % chg. (yoy) 11.5 19.2 CY2011 1,283 463 36.1 124 9.7 560 43.6 1,147 136 10.6 92.79 34.24 12.90 22 1.7 (0.55) (2.5) 23 1.8 CY2010 1,057 418 39.6 102 9.6 439.65 41.6 960 97 9.2 78 31 24 12 1.2 3 23.3 9 0.9 140.5 (119.3) 19.5 40 144bp 19.3 11.3 (45.8) 80.0 27.3 21.6 % chg 21.4 10.8

Strong order book and margin expansion boost profit

The company secured orders worth `1,200cr in the first four months of CY2012, which helped the companys revenue to grow by 11.5% yoy. During the quarter, the companys other expenses declined considerably as a percentage of net sales, which helped the operating margin to expand substantially by 492bp yoy. This can mainly be attributed to completion of low-margin NH1 projects. The companys profit jumped considerably by 204% yoy to `12cr mainly due to margin expansion.

Exhibit 2: Revenue growth trend

500 400
(`cr)

Exhibit 3: Expanding EBITDA margin

40 30 20
(`cr) (%)

60 50 40 30 20 10 0
1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12

15 12 9 6 3 0
(%)

300 200 100 0

1QCY10 2QCY10 3QCY10 4QCY10 1QCY11 2QCY11 3QCY11 4QCY11 1QCY12

10 0 (10) (20)

Revenue (LHS)

yoy growth (RHS)

EBITDA (LHS)

EBITDA Margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Investment arguments
Strong order book to drive revenue
The companys order book stood at `3,600cr as of April 2012, with government and private order ratio of 60:40. With the completion of the low profitable NH1 projects, the current order book is more into the high-profitability segments. The company also completed civil works for Iron Ore Port Terminal at Ennore Port, Chennai and various other piling and civil works in U.P., Odisha, Gujarat and Andhra Pradesh.

Exhibit 4: Order book (As of April 2012)

Segment
Marine and Specialist works (Piling & Foundation) Roads Airport and urban infrastructure project Tunnels and irrigation projects

%
80 7 8 5

Total
Source: Company, Angel Research

100

The company successfully added new contracts worth `1,132cr in CY2011. The major contracts were: Construction of ship repair facility at Lavgan, Maharashtra Road Project (six-laning of Pune Satara Road Phase 1), Maharashtra Construction of Terminal 12 Berth at Mundra, Gujarat Piling work at Cuddalore for 2x600MW Power Project in Tamil Nadu Construction of diaphragm wall and capping beam for proposed residential complex at Wadala, Mumbai, Maharashtra Piling work for multi-storey residential complex at Jaypee Greens, Noida The companys new order inflow in CY2011 was less as compared to CY2010, the major reasons being the sluggish economic environment, high interest rate and the upward trend in commodity prices. However, revenue growth outlook of the company looks healthy, as it has already bagged new orders for `1,200cr in the first four months of CY2012E. We expect the companys revenue to post a CAGR of 20% over CY2011-13E to `1,842cr.

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Exhibit 5: Strong order inflow expected in CY2012

2,500 2,000 1,500 1,000 500 0 CY2007 CY2008 CY2009 CY2010 CY2011 New contracts added (LHS) Source: Company, Angel Research yoy growth (RHS) CY2012* (Till April) 100 80 60 40 20 0 (20) (40) (60) (%)

Foray into the industrial and power segments A growth driver

The company recently forayed into the industrial and power segments and has already bagged orders for `300cr in the first four months of CY2012 and expects the segment to be worth `500cr-600cr by the end of CY2012. The recent order in the segment is from Adani Powers Dahej Project in Gujarat. The segment being a high-margin segment is expected to help the company in expanding its operating margin.

Interest cost reduction to drive bottom line

Interest cost for the company was as high as 14.6% in CY2011. However, the company expects interest rates to decline from 2HCY2012 as the company is in the process of switching some of its high interest cost loans to low interest cost loans. With the recent 50bp cut in repo rate by the RBI, it is expected that interest rates will see a downward trend. We expect the companys interest cost to decline by 14.2%, which will directly add to the companys bottom line, which is expected to be `44cr in CY2013E.

May 14, 2012

(` cr)

ITD Cementation India | 1QCY2012 Result Update

Financials
Revenue to post a 20% CAGR over CY201113E
The companys revenue is expected to post a 20% CAGR over CY201113E to `1,842cr on the back of strong order book of `3,600cr as of April 2012, executable over a period of two and a half years.

Exhibit 6: Strong order book to drive revenue

2,000 1,600 1,200 800 400 0 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E Revenue (LHS) Source: Company, Angel Research Revenue growth (RHS) 25 20 15 10 5 0 (%)

Exhibit 7: Revenue break-up

Area of operation Marine work and Pilling & foundation Hydro/ Roads/ Bridges/ Tunnels Power
Source: Company, Angel Research

(` cr)

% Contribution to revenue 60 20 10

Margin expands after the completion of low-margin contracts

The companys operating margin improved by 144bp in CY2011 to 10.6% from 9.2% in CY2010, majorly due to reducing proportion of the low-margin NH1 road projects in the order book. These projects were almost completed as of April 2012, which will further lead to margin expansion. Also, with a large share of pilling and foundation projects (having a higher gross margin of 1213% compared to other projects with a gross margin of 89%) in total revenue, the companys margin is expected to improve further by 49bp to 11.1% in CY2012E and stabilize around this level going forward.

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Exhibit 8: EBITDA margin to stabilize going forward

50 40 30 (` cr) 20 10 0 (10) CY2008 CY2009 CY2010 PAT (LHS) Source: Company, Angel Research CY2011 CY2012E CY2013E PAT growth (RHS) 300 250 200 150 100 50 0 (50) (100) (150) (200) (%) (%)

Profit to show impressive growth

The company has been reporting low profit in the past few years due to low margins and high cost of credit. However, going forward, margins are expected to improve and interest rates are expected to come down from 14.6% in CY2011 to 14.2% in CY2012E. Aided by these factors, we expect the companys profit to post a CAGR of 40% over CY201113E to `44cr.

Exhibit 9: PAT to post a CAGR of 40% over CY2011-13E

50 40 30 (` cr) 20 10 0 (10) CY2008 CY2009 CY2010 PAT (LHS) Source: Company, Angel Research CY2011 CY2012E CY2013E PAT growth (RHS) 300 250 200 150 100 50 0 (50) (100) (150) (200)

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Outlook and valuation

During the first four months of CY2012E, the company bagged orders worth `1,200cr, with the total order book of `3,600cr as of April 2012, executable over two and half years. We expect the companys revenue to post a CAGR of 20% and profit to post a CAGR of 40% over CY2011-13E to `1,842cr and `44cr, respectively. We remain positive on the stock with a Buy recommendation with a target price of `236 and a target PBV of 0.6x for CY2013E.

Exhibit 10: One-year forward PBV band

800 700 600 500 (`) 400 300 200 100 0 Jan-08 Jul-08 Price Source: Company, Angel Research Jan-09 Aug-09 0.2x Mar-10 0.4x Sep-10 Apr-11 Oct-11 0.8x May-12

0.6x

Competition
ITD Cementation looks attractive vis--vis its peers with a PBV of 0.4x and a PE of 4.9x for CY2013E. The companys earnings are expected to witness a robust CAGR of 40% over CY201012E to `44cr. Although Patel Engineering is trading at a PBV of 0.4x, ITD Cementation looks better with a PE of 4.5x and RoE of 10.2% for CY2013E. Simplex Infra looks costly with a higher PBV of 0.7x and PE of 6.2x for FY2014E.

Exhibit 11: Attractively valued as compared to peers

Company ITD Cementation Patel Engg. Simplex Infra Year end CY2012E CY2013E FY2013E FY2014E FY2013E FY2014E
Source: Company, Angel Research

Mcap (` cr) 215 215 612 612 1,023 1,023

Sales (` cr) 1,535 1,842 3,609 3,836 6,732 7,902

OPM (%) 11.1 11.1 13.1 13.1 9.3 9.6

PAT (` cr) 31 44 98 102 135 174

EPS (`) 27.3 38.3 14.0 14.5 27.2 35.1

RoE (%) 7.9 10.2 6.2 6.1 11.0 12.6

P/E (x) 6.8 4.9 6.2 6.0 7.6 5.9

P/BV (x) 0.5 0.5 0.4 0.4 0.8 0.7

EV/Sales (x) 0.6 0.5 1.0 1.1 0.5 0.4

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Concerns
Proper execution of ongoing projects is necessary for the company as any slowdown or freezing of projects either because of some approvals, clearance or investment issues may adversely affect the companys performance, as it directly affects the companys revenue. Disruption in the schedule of projects due to natural calamities is a big risk for the company. Volatility in raw-material prices in the coming years (i.e., steel and cement prices) may put pressure on the companys margin. Competition in the business also poses a big threat for the company. Any further slowdown in the economy may adversely affect the companys performance.

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Profit and Loss (Standalone)

Y/E December (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Net Raw Materials % chg Other Mfg costs % chg Personnel % chg Other % chg Total Expenditure EBITDA % chg (% of Net Sales) Depreciation & Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of Net Sales) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Extraordinary Expense/(Inc.) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY2008 CY2009 CY2010 966 8 958 0 958 22.2 402 36.1 271 8.0 74 8.1 152 29.6 899 59 (4.5) 6.2 20 39 (16.6) 4.1 47 14 1.5 (8) (124.0) 6 1 14.6 6 9 (3) (141.8) (0.3) (2.6) (2.6) (141.8) 980 7 973 973 1.5 374 (7.1) 271 0.2 84 12.6 152 0.2 880 92 55.9 9.5 31 62 56.3 6.3 71 17 1.8 (10) 29.2 8 2 29.5 5 0 5 275.0 0.5 4.6 4.6 275.0 1,072 15 1,057 1,057 8.7 418 11.9 238 (12.1) 102 22.0 201 32.5 960 97 5.0 9.2 31 66 7.3 6.3 78 24 2.3 (12) 18.3 12 3 23.3 9 0 9 72.0 0.9 7.9 7.9 72.0 CY2011 CY2012E CY2013E 1,297 15 1,283 1,283 21.4 463 10.8 305 27.9 124 21.6 255 26.6 1147 136 40.5 10.6 34 102 54.0 7.9 93 13 1.0 9 (178.9) 22 (1) (2.5) 23 0 23 146.2 1.8 19.6 19.6 146.2 1,557 22 1,535 1,535 19.7 571 23.2 344 12.8 147 18.9 302 18.7 1365 171 25.2 11.1 36 135 32.0 8.8 103 14 0.9 31 240.9 45 13 30.0 31 0 31 39.5 2.0 27.3 27.3 39.5 1,868 26 1,842 1,842 20.0 685 20.1 413 20.0 177 20.0 363 20.0 1638 204 19.7 11.1 38 166 23.6 9.0 120 17 0.9 46 49.2 63 19 30.0 44 0 44 40.3 2.4 38.3 38.3 40.3

May 14, 2012

ITD Cementation India | 1QCY2012 Result Update

Balance Sheet (Standalone)

Y/E December (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Deferred Tax (Net) Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Lease adjustment Goodwill Investments Current Assets Cash Loans & Advances Inventory Debtors Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 229 106 123 40 13 945 11 175 370 389 356 589 764 294 135 159 2 23 956 11 180 352 413 289 667 851 322 165 158 12 37 1014 35 131 357 491 335 679 886 395 197 198 3 41 1201 23 205 416 557 436 765 1,007 414 233 182 3 41 1363 28 245 462 627 459 904 1,130 435 270 165 3 41 1630 28 294 555 752 551 1,079 1,288 12 338 350 415 764 12 342 354 497 851 12 350 361 525 886 12 370 381 633 (8) 1,007 12 399 410 728 (8) 1,130 12 441 452 843 (8) 1,288 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

May 14, 2012

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ITD Cementation India | 1QCY2012 Result Update

Cash Flow (Standalone)

Y/E December (` cr) Profit before tax Depreciation Change in Working Capital Direct taxes paid Others Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments Others 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 CY2008 6 20 (300) (1) 2 (272) (87) (8) 37 (58) 333 (1) (42) 290 (41) 52 11 CY2009 8 31 (78) (2) 56 14 (27) (10) 14 (23) 82 (1) (72) 9 (0) 11 11 CY2010 12 31 12 (3) 59 111 (39) (14) 17 (36) 28 (2) (77) (51) 24 11 35 CY2011 22 34 (98) 1 74 33 (64) (4) 5 (62) 109 (3) (89) 17 (12) 35 23 CY2012E 45 36 (134) (13) (14) (81) (20) 14 (6) 94 (2) 92 5 23 28 CY2013E 63 38 (175) (19) (17) (110) (21) 17 (4) 116 (2) 113 (0) 28 28

May 14, 2012

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ITD Cementation India | 1QCY2012 Result Update

Key Ratios (Standalone)

Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Net 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 TO (Gross Block) Inventory / Net sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Int. Coverage (EBIT/ Int.) 1.1 6.6 0.8 1.3 5.0 0.9 1.3 4.7 0.9 1.5 4.2 1.1 1.6 3.9 1.3 1.7 3.8 1.4 4.2 131 126 155 163 3.3 136 150 134 232 3.3 123 156 119 225 3.3 110 149 123 197 3.7 110 149 123 192 4.2 110 149 123 191 5.1 5.6 (0.9) 7.2 7.5 1.5 7.5 8.2 2.6 10.0 10.8 6.1 11.8 12.6 7.9 12.8 13.6 10.2 4.1 0.9 1.4 4.8 9.7 1.1 (0.7) 6.3 0.7 1.2 5.3 10.1 1.3 (1.0) 6.3 0.8 1.3 6.3 11.4 1.3 0.0 7.9 0.7 1.4 7.3 10.0 1.5 3.4 8.8 0.7 1.4 8.8 10.0 1.6 7.1 9.0 0.7 1.5 9.5 10.0 1.7 8.8 (2.6) (2.6) 14.5 1.0 303.8 4.6 4.6 31.2 1.0 307.3 7.9 7.9 34.6 1.5 313.7 19.6 19.6 49.3 2.0 331.0 27.3 27.3 58.5 2.0 356.3 38.3 38.3 71.1 2.0 392.6 (70.6) 12.9 0.6 0.5 0.6 10.2 0.8 40.3 6.0 0.6 0.5 0.7 7.3 0.8 23.5 5.4 0.6 0.8 0.6 6.9 0.8 9.5 3.8 0.6 1.1 0.6 5.8 0.8 6.8 3.2 0.5 1.1 0.6 5.1 0.8 4.9 2.6 0.5 1.1 0.5 4.8 0.8 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

May 14, 2012

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ITD Cementation India | 1QCY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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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

ITD Cementation 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%)

May 14, 2012

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