Cement Small Cap ACChoksi

7/28/2019 Cement Small Cap ACChoksi

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Pick up in infrastructure spend by Government & softening in intererates should provide a boost to Cement consumption; which pomonsoon shouldfurtherbepropelled.

Cement consumption in India is significantly lower as compared to ipeers. Lower cement per capita consumption leaves room for industgrowth.

We expect the widening of valuation premium between large and smaplayers to get rationalized in due course.

M&Aactivitiesto stimulatevaluations.

Forthcoming State elections and 2014 Centre elections to step up cemeconsumption.

We expect the infrastructure spend to pick up in the periods come. As we know, m

governmentonsoon remains a sluggish period for the ceme

consumption; the sector however categorically sees an uptick in demand pomonsoon.

We see an pre-election improvement in demand for cement. Over the necouple of years many major cement consuming states are scheduled felections. The incumbent government is expected to step up infrastructurelated activities in the states.

Valuation premium commanded by large cement players have widened due their out performance. As a result, smaller regional players are trading attractivevaluations. We expectthe premiumto get rationalizedin duecourse.

We believe consolidation in the industry would be the next trigger and woubenefit thesmaller players more dueto there cheap asset based valuations . Evin thepast anyM&Aactivityhaspositively influencedthe sectorvaluations.

Per capita consumption of cement in China was around 6.9 times (x) and thworld was around 2.5(x) to that of India. We see sufficient room for industgrowth.

A C CHOKSISHARE BROKERS PRIVATE LIMITED

C Choksi Institutional Research [email protected] 1

C Choksi Institutional Research | Initiation Report|MINING Coal India Nov 16, 201

Investment Thesis

Small players gearing up to ride (Up)cycle & catching up Large players

____________________________________________________________________________________

C Choksi Institutional Research | Initiation Report| Cement Small Caps Oct 01, 201

Target Potential Mcap EV/Tonn

Price (`) Upside (%) (in` mn) FY14E(

JK Lakshmi Cement BUY 113 127 11.8% 13,881 2,814

Mangalam Cement BUY 162 179 10.2% 4,330 2,014

Orient Paper BUY 74 83 11.6% 15,171 3,347

JK Cement BUY 253 286 13.1% 17,692 3,746

Birla Corp BUY 275 305 11.1% 21,176 2,458

Company Rating Price (`)


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C Choksi Institutional Research

C Choksi Institutional Research | Initiation Report|MINING Coal India

____________________________________________________________________________________

C Choksi Institutional Research | Initiation Report| Cement Small Caps

Pick up in infrastructurespend by Government & softening in interest rates should provia boost toCementconsumption;which post monsoonshould furtherbepropelled.

We expect the government infrastructure spend to pick up in the periods to come. We have seenpolicy paralysis affecting consumption growth coming from the infrastructure sector. However late we arewitnessing lotof policyactioncoming fromthegovernment. The Government has plato double the investment in infrastructure to US $ 1 trillion in the Twelfth FiveYear Plan (2012-1Based on the expected investment in the infrastructure sector the overall cement industry wourequire a capacity of around 480 million tonnes, incremental 150 MT. We believe that the coming 12 months should see a pick in infra activities as this would be the last opportunity for thGovernment before the2014 elections. We expect the2nd half of FY13 shouldseedemand pickiup with softening of interest rates. As we know, monsoon remains a sluggish period for the cemeconsumption; thesectorhowever categoricallyseesan uptick indemandpost monsoon.

Within the infrastructure sector, biggest share of cement demand comes from roads. With tNHAI speeding up mechanism of awarding the road projects in order to achieve the Ministry oRoad Transport & Highways target of 8,800 km for FY13, higher by 10.6% y-o-y, we may simprovements in demandfrom road projects for thecurrentfiscal. NHAI hadawarded only 5,23km during Fiscal 2008 till 2010. In FY11 NHAI awarded 5,059 km and in FY12 it award6,491 km. The rate of growthwas around28.3% in past fiscal. The ministry has set a targof 20 Km pd of Road Building. Last year it could manage only 10.39 km pd. Ministawarded inall 7,957 kmin FY12in 62projects costing around 680 bn. Itwashigherby 54over 5,166 Km in FY11. As per the Central Road Research Institute (CRRI), India lags fbehind developed nations like USA and Germany where around 2/5th of roads are builtocementconcrete whereas inIndia it is only around 2%.

During FY12 as against a target of 2,500 km of National Highways, NHAI could compleconstruction of 2,248 km (6.16 km pd) (Shortfall of ~10.1%). During FY12 it alcompleted construction of 1547 km (4.23 km pd) of National Highways through StaPWDs & BRO. Considering a requirement of 1,000t of cement per Km of roconstructed, wemayseean additional demandof 7mtpa from NHAIroad projects.

National Highways havea total lengthof 76,818km. TheGovernment has been planningstrengthen highways through various phases of the National Highways DevelopmeProject (NHDP).Around68%of total NHAI projects areincompleteand77%of NHDPprojects are incomplete. The projects under implementation should provide a reasonabconsumptionboost.

`

[email protected] 2


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Exhibit 2 - NHDP Projects - Long way to

Programme Total Complete Under To be Incomple

Length Implementation Awarded

Km Km Km Km %

GQ 5,846 5,840 6 0 0%

NHDP I & II -NS-EW 7,142 6,018 703 421 16%

NHDP III 12,109 3,798 6,471 1,840 69%

NHDP IV 20,000 0 3,318 16,682 100%

NHDP V 6,500 940 3,047 2,513 86%

NHDP VI 1,000 0 0 1,000 100%

NHDP VII 700 14 27 659 98%

NHDP Total 47,451 10,770 13,566 23,115 77%

Port Connectivity 380 355 25 0 7%

SARDP-NE 388 36 76 276 91%

NH-34 6 0 6 0 100%

Others 1,390 961 409 20 31%

NHAI Total 55,461 17,962 14,088 23,411 68%

5,237 5,166

7,9578800

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY08-10 FY11 FY12 FY13 P

Road Projects (In Kms)

Exhibit 1 - Road Projects - Speeding up

Source: NHAI, Committee of Infrastructure, Industry, A C Choksi Institutional Research

Source: Ministry of Road Transport & Highways, NHAI, A C Choksi Institutional Research


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As per the working group on power for 12th plan total power capacity addition is planned at 75,785MW by FY17.Cement is one of the key inputs needed for erection, commissioning, transmission &distribution of power system networks. As per the Central Electricity Authority (CEA), setting upHydro based power plant (956MT/MW) consumes around 6 times more cement than Coabased(150 MT/MW). The capacity for Hydo based project is planned around 15,000 MW for 13thplan.Total requirement of cement during the 12th five year plan excluding distribution systemnetworks& poweranddistributiontransformers is envisagedat~21.7mnmt.

Exhibit 4 - Cement Requirement per unit

Exhibit 3 - Power Capacity Addition (MW) Programme

Type 2012-13 2013-14 2014-15 2015-16 2016-17 Total

Nuclear 0 0 0 1,400 1,400 2,800

Hydro 1,370 1,808 2,077 2,539 1,419 9,204

Thermal :

Coal 13,685 12,970 13,555 12,575 9,910 62,695

Gas 986 100 0 0 0 1,086

Thermal 14,671 13,070 13,555 12,575 9,910 63,781

Total 16,041 14,878 15,632 16,514 12,729 75,785

Capacity Addition - Projection for 12th plan

Cement Requirement MT/MW MW Planned MT

Power Plant

Coal based 150 62,695 9,404,250

Gas Based 60 1,086 65,160

Hydro 956 9,204 8,799,024

Nuclear 195 2,800 546,000Total 18,814,434

Power system network Line MT/ckt km ckt km Planned

765 KV 56 27,000 1,512,000

HVDC 26 9,440 245,440

400 KV 21 38,000 798,000

220 KV 8 35,000 280,000

Total 109,440 2,835,440

Total Requirement 21,649,874

Source: Working Group on Power, Planning Commission, A C Choksi Institutional Research


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Forthcoming State electionsand2014 Centreelectionstostepup cementconsumption.

We see a pre-election improvement in demand for cement. Over the next couple of years mamajor cement consuming states are scheduled for elections. We will see some large states GujarAP, MP, Karnataka, Maharashtra & Rajasthan going into elections. The combined consumptishare of the states going into election in FY 13 & FY14 is half of the total cement consumption thecountry. The incumbentgovernment is expected tostep up infrastructure related activities in tstateswhichwould resultin higher consumption of cement.

Exhibit 5 - Election Schedule (Tentative)

Tenure End Date State Election

10-Jan-13 Himachal Pradesh FY 1317-Jan-13 Gujarat FY 13

10-Mar-13 Meghalaya FY 13

16-Mar-13 Tripura FY 13

3-Jun-13 Karnataka FY 14

12-Dec-13 MP FY 14

15-Dec-13 Mizoram FY 14

17-Dec-13 Delhi FY 14

31-Dec-13 Rajasthan FY 14

4-Jan-14 Chattisgarh FY 14

31-May-14 Central Elections FY 152-Jun-14 Andhra Pradesh FY 15

7-Jun-14 Odisha FY 15

27-Oct-14 Haryana FY 15

4-Nov-14 Arunachal Pradesh FY 15

7-Dec-14 Maharashtra FY 15

3-Jan-15 Jharkhand FY 15

Source: Election Commission of India, A C Choksi Institutional Research


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Cementconsumption in India is significantlyloweras compared to itspeers. Lowerceme

per capita consumption leavesroom for industry growth.

Per capita consumption of cement in China was around 6.9 times (x) and the world was aroun2.5(x)to that of India.

Consumption of cement per capita in China in 2010 was around 1210 kg and the world was arou

433 kg; whereas that of India was around 176 Kg per capita. It was 14.6% & 40.6% to that oChinaand world respectively.

We believe this would remain as the key driver going forward propelled by risinurbanization, severe housing shortage, tax incentives, easy availability of finance, thrust olow cost housing and increasing earning levels.

Global CemeProduction has continued to be expanding at an average rate of 6.4% in the last five yeafrom 2,568 million tonnes (MT) in 2006 to 3,294 million tonnes in 2010 with an installcapacity of ~3,900 MT. China is the largest cement producer in the world accounting falmost 56% of the global production and accounts for ~50% of global capacity installeIndia is the second largest cement producer in the world, it accounts for ~7%-8% of worcapacity. India has a lot to catch up in terms of capacity installed. India & China are few othe fastest growing cement markets in the world with a consumption CAGR of ~ 9.8% 11.4% for a period of 5 years till 2010 respectively. Share of China in global demand~57.6%andIndiais~6.8%.

The production of cement is correlated

the GDP growth rate and is sensitive to the growth in construction and infrastructurGenerally, demand for cement grows at ~1.2 times the growth in GDP.


Exhibit 6 - Per capita cementconsumption (Kg)

Source: Companies, A C Choksi Institutional Research

2,5682,763 2,830

2,998

3,294

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010

Exhibit 7 - Global CementProduction(MT)

Source: Planning Commission, Global Cement ReporA C Choksi Institutional Research


1,210

433

395

240

176

0 500 1,000 1,500

China

World

Europe

US

India


C Choksi Institutional Research [email protected] 6____________________________________________________________________________________


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There is a need to lay emphasis on low cost mass housing schemes in small towns and sem

urban areas as there is intense shortage of housing in rural, semi urban & urban areaHousing is expected to remain major driver for the industry As per the working group orural housing under the XII Plan, total rural housing shortage for 12th Plan is seen at 43.million units. As per planning commission, 5 large states Maharashtra, TN, UP, WB & Acumulatively contributes around 52% of housing shortages in India. Rising urbanization increasing demand for housing and infrastructure are the key reasons for the expectationohigh growth in demand. Cement demand in India has been driven by Real Estate (76%) anInfrastructure(20%).Residential real estate has been the primary driver contributing ~63to the total demandfor the commodity. Housing(64%) andInfra(17%) together contribut81% of cement demand. We believe these sectors, especially housing would remain as thkey driver going forward propelled by rising urbanization, severe housing shortage, tincentives, easy availability of finance, thrust on low cost housing and increasing earninlevels. The government needs to take steps to rehabilitate the slums with the countrys ofifth of population living in slums.As per industryestimatesaround75-80 million tonnesocementwouldbe consumed forhousingmillions of slum dwellers.


____________________________________________________________________________________

Exhibit 8 - Rural Housing Shortage (in millions)

Source: Planning Commission, A C Choksi Institutional Research


In Million Units In Million Units

Year Housing stock Year Household

2006 150 2006 153

2007 153 2007 157

2008 156 2008 160

2009 159 2009 1632010 163 2010 167

2011 166 2011 170

2012 170 2012 174

2013 173 2013 177

2014 177 2014 181

2015 180 2015 185

2016 184 2016 189

2017 188 2017 193

Year Pucca houses Year Semi-pucca

2006 67 2006 55

2007 70 2007 562008 73 2008 58

2009 76 2009 59

2010 79 2010 61

2011 82 2011 62

2012 85 2012 64

2013 89 2013 66

2014 92 2014 67

2015 96 2015 69

2016 100 2016 71

2017 104 2017 73




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We expect the widening of valuation premium between large and small players to grationalized in duecourse.

Valuation premium commanded by large cement players havewidened due to their out performancAs a result, smaller regional players are trading at attractivevaluations. We expect the premium to grationalized in due course. Even though the valuation premium enjoyed by larger cememanufacturers is justified owing to factors like regional diversification, larger market share, bettcost advantagesbutwebelieve thesmaller players tocatchupandreducethegap gradually. We feelthenext rally thesmaller companiesto outperform thelarger companies.

Exhibit 9 - Stock Price Performance

CMP* Mkt Cap 2yr 3yr

Cement Stock Performance (`) (` bn) 3m 6m YTD 1yr CAGR CAGR 3m 6m YTD 1yr

Ultratech Cement 1,835 503 25% 23% 58% 62% 34% 33% 14% 16% 37% 45%

Ambuja Cement 195 300 16% 13% 25% 33% 15% 25% 5% 5% 4% 16%

ACC 1,375 258 14% 0% 21% 27% 16% 19% 3% -7% 0% 11%

Shree Cement 3,621 126 25% 22% 67% 101% 33% 30% 14% 15% 46% 85%

Madras Cement 184 44 24% 20% 79% 83% 25% 15% 13% 13% 58% 67%

India Cements 86 26 3% -20% 30% 24% -14% -14% -8% -28% 9% 7%

Birla Corporation 213 16 -8% -26% -21% -34% -27% -10% -19% -34% -42% -51%

JK Cement 234 16 56% 55% 134% 104% 18% 20% 46% 47% 113% 88%

Orient Paper & Industries 70 14 29% 14% 38% 16% 6% 8% 18% 6% 17% -1%

JK Lakshmi Cements 100 12 50% 50% 168% 143% 26% 12% 39% 43% 148% 126%

OCL 134 8 47% 36% 56% 48% -2% 1% 36% 29% 35% 31%

Mangalam Cement 136 4 8% -4% 69% 30% -6% 2% -3% -12% 48% 14%

Absolute Return (%) Relative to Sensex

Source: BSE, A C Choksi Institutional Research

Note: *Data as on 25th September 2012


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M&Aactivitiesto stimulatevaluations

Cement industry in India comprises of 183 large cement plants and more than 360 mini cemenplants. Large producers contribute about 97% to the installed capacity. We believe consolidation ithe industry would be the next trigger andwould benefit the smaller players more due to their cheaasset based valuations . Even in the past any M&A activity has positively influenced the sectovaluations. In a down cycle smaller companies are more likely to suffer due to subdued utilizationanrising operating costs. These companies tend to get absorbed by larger cement players throughM&A. Global companies have preferred the route of acquisition to enter Indian cement markeInternational players including Holcim (Switzerland), Italcementi(Italy), CRH (Ireland), Cimpo(Portugal), Vicat SA(France), Lafarge(France) are interested to increase their market share in IndiaExcept Holcim, having 27% of its global capacity in India, all the large cement companies doesnhave more than 5% of their global capacity concentrated in India. Mexico based global majoCemex(96 MT Capacity) & Brazil based Votorantim are yet to gain access to Indian markets

Recently, CRHs offer to acquire 51%stake in Jaypees Gujarat Units for an Enterprise Value/Tonnof around US$160 have also triggered a buzz in the cement space. We believe it would be preferablfor the foreignsuitors to enter Indianmarkets throughacquisition rather than setting up a greenfielproject due to time& complexities involved in the process. Inorder togain access to the fastgrowinIndian market, they would noti shy away from paying a higher premium to the target companiesbecause that saves them from the difficulties involved in land acquisition, getting environmentaclearances and the long gestation period. Even large Indian companies are open to acquisitions tmaintainor increase theirmarketshare.

Exhibit 10 - M&A Trends-to drive valuations

Year Acquirer Target EV/t (US$)

1997-98 India Cement Visaka 88

1997-98 Lafarge Tisco 75

1997-98 Grasim Shree Digvijay 41

1999-00 India Cement Shree Vishnu 68

1999-00 Guj Ambuja DLF Cement 92

1999-00 Lafarge Raymond 80

1999-00 Italcementi Zuari Cement 95

2001-02 Italcementi Shree Vishnu 80

2003-04 Grasim L&T 80

2003-04 ACC IDCOL 712005-06 Holcim ACC 100

2005-06 Holcim Guj Ambuja 200

2007-08 Heidelberg Mysore Cement 117

2007-08 Cimpor Shree Digvijay 162

2007-08 CRH My Home 235

2010-11 Vicat Bharathi Cement 200

2011-12 Jaypee Andhra Cement 85

Source: Planning Commission, Merger Market, E&Y, Companies, Industry, A C Choksi Institutional Research


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Exhibit 11 - Global Capacity vs India Exposure

0

50

100

150

200

250

Holcim Lafarge Heidelberg Italcementi

Global Capacity

Emerging Markets

India Capacity

Source: Industry, Companies,A C Choksi Institutional Research


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C Choksi Institutional Research | Initiation Report|MINING Coal IndiaC Choksi Institutional Research | Initiation Report| Cement Small Caps

Top five states have ~62% of the countrys cement capacity, out of which Andhra Pradesh(21%),Rajasthan(14%) andTamilNadu(11%)have a combined share of ~47%.

Top five states contribute ~49% of the countrys cement requirement, out of whichMaharashtra (13%), Uttar Pradesh (11%), Andhra Pradesh(9%)have a combined share o~32% .

Exhibit 12 - Statewise Capacity

Exhibit 13 - Statewise Consumption

21%14%

11%

8%

8%

7%

6%

4%

4%

3%

3%

3%

2%

6%

0% 5% 10% 15% 20% 25%

APRajasthan

Tamil Nadu

MP

Gujarat

Karnataka

Maharashtra

Chhattisgarh

UP

HP

OrissaJharkhand

WB

Others

13%

11%

9%

9%

8%

6%

6%

5%

5%

4%

4%

4%

3%

15%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Maharashtra

UP

AP

Tamil Nadu

Gujarat

Karnataka

Rajasthan

MP

WB

Kerala

Haryana

PB

Bihar

Others

State wise cement share

Source: Planning Commission, CMA, Industry, A C Choksi Institutional Research____________________________________________________________________________________


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Top five states have ~81% of the countrys Limestone reserves & resources, out of whicAndhra Pradesh (28%), Karnataka(21%) ,Rajasthan(15%) and have a combined share o~63% . Nearly half of the countrys R&R is located in the southern region. The reason fomajor capacity addition happening in southernregionandin thestatesof AndhraPradesh &Rajasthan is the presence of limestone which is the key raw material for producing cemenIndia has limestone reserves of 8,949 million tonnes and resources of 115,591milliotonnes. Total available R&R after considering reserves under restricted areas are 89,86milliontonnes.

Exhibit 14 - Statewise Share of Limestone R&R

State wise Limestone R&R

28%

21%

15%

11%

7%

6%

3%

3%

1%

1%

1%

1%

1%

2%

AP

Karnataka

Rajasthan

Meghalaya

Gujarat

Chhattisgarh

MP

HP

Maharashtra

Uttaranchal

Assam

Orissa

TN

Others

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

States Reserves Resources Total R&R

Andhra Pradesh 2,564 31,718 34,282

Karnataka 718 24,897 25,614

Rajasthan 1,533 17,005 18,538

Meghalaya 147 13,798 13,944

Gujarat 671 8,287 8,958

Chhattisgarh 852 7,051 7,903

Others 2,464 12,836 15,300

Total 8,949 115,591 124,540

Exhibit 15 - Statewise Limestone R&R (in million

Source: Planning Commission, CMA, Industry, A C Choksi Institutional Research


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Utilization Levels

Exhibit 16 - Production & Utilization

50%

60%

70%

80%

90%

100%

110%

0

50

100

150

200

250

All India North West Central East South

Production

Utilization

0%

20%

40%

60%

80%

100

0

50

100

150

200

250

300

350

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Capacity Additions MT Capacity Instal led MT Production MT Capacity ut ilisation %

Source: Planning Commission, CMA, DIPP, The Office of Economic Adviser, A C Choksi Institutional Research

Source: CMA, Industry, A C Choksi Institutional Research

Exhibit 17 - Capacity Additions


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____________________________________________________________________________________


Exhibit 18 - Supply Demand

70%

72%

74%76%

78%

80%

82%

84%

86%

88%

90%

0

50

100

150

200

250

300

350

400

2009 2010 2011 E 2012 E 2013 E 2014 E 2015 E

Supply Demand CU

Source: EIU, Industry, A C Choksi Institutional Research


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Cement Prices

Exhibit 19 - All India Exhibit 20 - Central India

Exhibit 21 - Southern India Exhibit 22 - Western India

Exhibit 23 -Northern India Exhibit 24 - Eastern India

70%

75%

80%

85%

90%

95%

100%

0

50

100

150

200

250

300

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Average cement price (`/50 Kg) CU(%)`

`

0

50

100

150

200

250

300

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Average cement price ( /50 Kg) CU(%)

50%

60%

70%

80%

90%

100%

110%

0

50

100

150

200

250

300

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12


0

50

100

150

200

250

300

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Average cement price ( /50 Kg) CU(%)`

0

50

100

150

200

250

300

FY

01

FY

02

FY

03

FY

04

FY

05

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11

FY

12

Average cement price ( /50 Kg) CU(%)`

70%

75%

80%

85%

90%

95%

100%

105%

0

50

100

150

200

250

300

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12


Source: CMA, Dealers, A C Choksi Institutional Research


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Power Efficiency

Exhibit 25 - Fuel (Coal/Pet Coke)(KCal/kg of Clinker)

660

680

700

720

740

760

780

800

JKCement

ACC Ambuja JKLakshmi

OrientPaper

Ultratech

Fuel (K.cal/Kg of clinker)

Exhibit 26 - Fuel (Coal/Pet Coke)(KCal/kg of Clinker)

72.0

74.0

76.0

78.0

80.0

82.0

84.0

86.0

88.0

90.0

92.0

Birla Corp MangalamCement

JK Cement Ambuja ACC Ultratech ShreeCement

MadrasCement

OrientPaper

JKLakshmi

Electricity Kwh/T of Cement

Source: Company, Industry, A C Choksi Institutional Research


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____________________________________________________________________________________


Company

Section


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C Choksi Institutional Research | Initiation Report|MINING Coal IndiaC Choksi Institutional Research | Initiation Report| JK Lakshmi Cement

C Choksi Institutional Research [email protected] 18____________________________________________________________________________________

Expansions plans at JK Lakshmi on track and to increase the volumgoingforward.

Fuel efficiencyto lead to increase inmargins.

Buyback announcement at 70 to augment the price and to impro

return ratios

JKLC to reap benefits of exposure to better performing markets anhigher capacityutilizations

`

Valuation

As part of its expansion strategy, JK Lakshmi Cement will come up wigreenfield in Durg, Chattisgarh with a capacity of 2.7 MT. Tproject is on track and is expected to be operational by October 2013. Its spgrinding unit of 0.55 Mn MT at Jhajjar, Haryana became operational in Ap2012.

cement plant

JKLC has secured long term power supply with VS Lignite at a cost closer to captivegenerationcost. JKLC is a fuel efficient manufacturer, which is expectto lead toan improvement in itsmargins.

JKLC with a market share of 2.17%, caters to the Northern(56%) anWestern(44%) regions of the country. Gujarat and Rajasthan are the top twmarkets for JKLC, contributing ~60%of thecompanys totalvolumes.

We initiate coverage with a BUY Rating on JK Lakshmi Cement with a targpriceof 127, valuing itusing EV/TonneMethod.`

The company has announced a Buy-Back plan of equity upto 975 mBuyback, if fullydone,will improve return ratiosof thecompany.

`

JK Lakshmi Cement

Shareholding Chart (as on 30/6/2012)

Share price Performance (1 yr)

inesh Sarat Sheth

22 6159 5125

[email protected]

ource: NSE, BSE, A C Choksi Institutional Research

JKLC

Key Financials

(In ` mn) FY 11 FY 12 FY 13 E FY 14 E

Net Sales 13,222 17,181 19,563 23,716

gr owth (%) -11.3% 29.9% 13.9% 21.2%

EBITDA 1,908 3,280 3,558 4,832

gr owth (%) -55.1% 71.9% 8.5% 35.8%

PAT 591 1,088 1,346 1,917

gr owth (%) -75.5% 84.0% 23.8% 42.4%

EPS 4.8 8.9 11.4 16.3

EBITDA Margin 14.4% 19.1% 18.2% 20.4%

NPM 4.5% 6.3% 6.9% 8.1%

ROE 5.7% 9.8% 11.1% 14.4%

EV/EBITDA 5.5 5.8 4.9

P/E 12.8 9.9 7.0

P/B 1.2 1 .1 0.9

Recommendation BUY

Target Price 127Recommendation price 113

Potential Upside(%) 11.8%

ndustry Cement

Market Cap (` Mn) 13,881

Shares O/S (Mn) 122

Face Value 5

Key Indices

BSE Sensex 18835

NSE Nifty 5721

Stock Info

BSE Code JKLAKSHMI

BSE Code No. 500380

NSE Code JKLAKSHMI

Bloomberg JKLC IN

Reuters Code JKLC.BO

2-Week High 116

2-Week Low 37

Market Stats

Average Volumes 60,571

Average Trades 451Average Turnover (` Mn) 4

Promoters46.0%

FII's 3.7%

MF/Insurance Cos

4.3%

FI's/Banks/Gov8.4%

Others37.7%



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JKLC Sensex


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Expansions plansat JKLakshmi on trackandto increase thevolumes going forward.

As part of its expansion strategy, JK Lakshmi Cement will come up with greenfield cement plantDurg, Chattisgarh with a capacityof 2.7MT. Theprojectis on trackandis expected tobeoperationbyOctober2013. Thecost of the prioject is 12,500 mn, out of which 8,500 mn would be throudebt and thebalnce throughinternal accruals. Its split grindingunit of 0.55 Mn MT at Jharli, JhajDistrict in Haryana became operational in April, 2012. The total investment on grinding unit w

1,000 mn. The companys current capacity owing to the new unit has increased to 5.29 MT. Tgrinding unit is strategically located adjacent to the source of fl y ash and in the vicinity of DelMumbai Industrialcorridor(DMIC).

JKL is further augmenting the existing clinker capacity at Jaykaypuram by additional 0.33 MT froto 4.29 MT at a cost of 1,000 mn. The additional clinker would lead to incremental cemeproduction capacity of around 0.5 MT. The company would finance the project by a debt of 7

mn and the balance through internal accruals. The company plans to increase its capacity to 5.8 MbyMarch,2013and subsequently to8.5 MTby Oct/Dec 13.

JKL is also setting up a value added product project of AAC Blocks at haryana at a cost of 400 mnAutoclave Aerated Concrete (AAC) blocks make an excellent building material because of superior thermal insulation properties, fire resistant and absorbing abilities. AAC Blocks are easy work with, lightweight, provide superior thermal insulation, versatile in nature and extremedurable. AAC saves energy cost and labour cost while transportation. The project is likely to gcommissionedbyMarch,2013.Thecapacitywouldbe 0.132million cu.m.

Further, thecompany hasexpressed thewillingness to revive Udaipur CementWorksLtd.Theplahas an installed capacity of 1.2 MT in Udaipur, Rajasthan. Post that the capacity would be increas

to9.7 MT. Itis however ata very initial stageand may notcome inthe immediate future.

JKL is looking to consolidate its presence in RMC segment and plans to increase the annual capacto 0.7 mn cubic meter. It has recently launched its RMC plant in Kota with a capacity of 30-cm/hour.

Total cost of its expansions stands at around 13,900 mn. It is planning to finace it through debt 9,480 mnand internal accrualof 4,420 mn.

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`

`

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`

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JKLC Capacity Location State Capacity Cost D:E Commissioning

Clinkerisation (MT) Jaykaypuram Rajasthan 0.33 1,000 7:3 March'2013

Cement (MT) Durg Chattisgarh 2.70 12,500 17:8 Oct/Dec' 2013

AAC Blocks (Mn. Cu.M) Haryana Haryana 0.132 400 7:3 March' 2013

Exhibit 27 - Ongoing & Upcoming Projects

____________________________________________________________________________________C Choksi Institutional Research [email protected] 19

C Choksi Institutional Research | Initiation Report| JK Lakshmi Cement

Source: JKLC, A C Choksi Institutional Research


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Fuel efficiency to lead to increase in margins.

JKLC has secured long term power supply with VS Lignite at a cost closer to its captive generatiocost. JKLC is a fuel efficient manufacturer, which is expected to lead to an improvement in margins. Fuel efficiency to improve with increased captive usage and long term power supply tie uat cost . JKLC requires around 67MW of power, out of which it sources 21 MW power from VLignite at a cost of 3.94/Kwh, it has existing power plant of 36 MW and upcoming power plant o18 MW, it also has 12 MWgreen power plant to utilize the waste heat of preheater. Thecompany h87 MW of power capacity at an average cost 3.4/Kwh. The Company also improved usage oalternate fuel of bio-mass from 2% to 6%. We expect the EBITDA/tonne to improve fro694/tonne to 776/tonne from FY 12 to FY14E, growing at a CAGR of 5.7%. We expect t

EBITDAmarginstoimproveby129bpsfrom19.1%inFY12to20.4%inFY14E.

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Exhibit 29 - ElectricityConsumption-(Kwh/T of Cement)

40%

45%

50%

55%

60%

65%

70%

75%

80%

0

50

100

150

200

250

300

FY 09 FY 10 FY 11 FY 12

Own Generation (Kwh in mn) Purchased (Kwh in mn)

% Self Sufficiency (RHS)

Exhibit 30 - Self Sufficiency in Power

8985

82 82

0

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20

30

40

50

60

70

80

90

100

FY 09 FY 10 FY 11 FY 12

Exhibit 28 - Fuel Consumption (PetCoke/Coal) (in Kg/MT)

80

79 79

78

75.00

76.00

77.00

78.00

79.00

80.00

81.00

FY 09 FY 10 FY 11 FY 12




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JKLC to reap benefits of exposure to better performing markets and higher capaciutilizations

Buyback announcementat 70toaugment the price and to improvereturn ratios`

JKLC with a market share of 2.17%, caters to the Northern(56%) and Western(44%) regions of thcountry. Gujarat and Rajasthan are the top two markets for JKLC, contributing ~60% of tcompanys total volumes. In addition to that the Other Northern region contributes around 32% othevolumes. The remaining 8% comes from Maharashtra. Although, all India volumes grewby 7last fiscal, thevolumes growth seen in Gujarat and NorthIndia was 15.4% from 15.6MTto18.0Mand 8.9% was 15.4% from 47.1 MT to 51.3 MT respectively. The regional mix have helped JKLC post a healthy 13.5% growth in volumes from 4.31 MT to 4.89 MT in FY12. Focus towards regiogrowing higher than national average to pan out well for the company. The market share of JKLimproved marginally inprevious fiscalby12.6 basispoints to2.17%.

The company has announced a Buy-Back plan of equity upto 975 mn. Buyback, if fully done, wimprove returnratiosof thecompany. Thebuyback program involves 9.96%of theaggregateof the total paid-up equity capital and free reserves of the Company as on March 31, 2011. Thbuyback begun previous fiscal on 26th March, 2012 and will end on 6th Feb, 2013. The maximubuyback price isset at 70. Thecompanyhas bought back46,88,920 equity sharestillAug29, 2012.

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Exhibit 31 - Regional Volume Mix

Rajasthan24%

Gujarat36%

Maharashtra8%

North India32%




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Weinitiate coverage with a BUY Rating on JK Lakshmi Cement with a target price of 127valuing it using EV/Tonne Method.

`

At the recommendation price of 113, the stock is trading at 9.9x and 7.0x its FY13E and FY14earnings, respectively. The stock is trading at an EV/EBITDA of 5.8x and 4.9x FY13E and FY14EBITDA,respectively.

JKLC is trading at FY 14 E EV/tonne of US$56. We have valued the company by applying EV/tonne of US$60 on its FY 14 E capacity of 8.5 million tonnes. Its implied EV/EBITDA(comes to5.3(x) atFY14E EBITDA of 4,832 mn. Our target prices comes to 127.We believe ithaveFY14E dividendyieldof 1.7%.

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Risk Factor

Grid

Valuation & Risk

Growth

Value

High

Risk

Medium

Risk

Low

Risk


Top Shareholders Shares in Mn %Bengal & Assam Company Limited 27.22 23.13%

JK Agri Genetics Ltd 13.65 11.60%

Other Promoter group entities 13.21 11.22%

Promoter Group - JK Group 54.07 45.95%

Life Insurance Corporation of India 9.55 8.11%

HDFC Standard Life Insurance Company Limited 3.69 3.14%

Total 117.67 100.00%

as on 30th June 2012

Exhibit 32 - Shareholding



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Exhibit 34 -Implied EV/EBITDA

Implied EV/EBITDA

EBITDA 4832

Enterprise Value 25,494

EV/EBITDA (X) 5.3


Exhibit 33 - Target price

Valuation

EBITDA (FY14 E) 4,832

EV/Tonne Capacity multiple ($) 60.00


Add Cash & Cash equivalents 4,890

Less Debt 15,454

Less Minority Interest 0Equity Value 14,930

Issued Shares (In Mn) 118

Target price 127

Recommendation Price 113

Upside Potential 12%

Source: A C Choksi Institutional Research


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Exhibit 35 - Income Statement


JKLC

Particulars FY 09 FY 10 FY 11 FY 12 FY 13 E FY 14 E

Period Ended 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-1Income

Net Sales 12,245 14,905 13,222 17,181 19,563 23,716

% Growth 22% -11% 30% 14% 21%

Employee cost 692 854 803 984 1,109 1,328

% Growth 24% -6% 23% 13% 20%

% o f Ne t Sal e s 6% 6% 6% 6% 6% 6%

Consumption of Raw materials 1635 2197 2711 2860 3257 3830

% Growth 34% 23% 5% 14% 18%

% o f Ne t Sal e s 13% 15% 21% 17% 17% 16%

Power and Fuel 3,063 2,900 3,919 4,136 4,724 5,177

% Growth -5% 35% 6% 14% 10%

% o f Ne t Sal e s 25% 19% 30% 24% 24% 22%Outward Freight Charges on Cement 2,022 2,525 2,636 3,313 3,865 4,755

% Growth 25% 4% 26% 17% 23%

% o f Ne t Sal e s 17% 17% 20% 19% 20% 20%

Other Expenditure 1,668 2,213 1,596 2,602 3,232 3,841

% Growth 33% -28% 63% 24% 19%

% o f Ne t Sal e s 14% 15% 12% 15% 17% 16%

Total Expenditur e 9,140 10,659 11,314 13,901 16,005 18,884

% Growth 17% 6% 23% 15% 18%

% o f Ne t Sal e s 75% 72% 86% 81% 82% 80%

EBITDA 3,106 4,246 1,908 3,280 3,558 4,832

% Growth 37% -55% 72% 9% 36%

EB IT DA M ar g in 25% 28% 14% 19.09% 18.19% 20.37%

Depreciation 691 800 846 1,297 1 ,381 1,754

% Growth 16% 6% 53% 6% 27%

% o f Ne t Sal e s 6% 5% 6% 8% 7% 7%EBIT 2,415 3,446 1,062 1,982 2,177 3,078

% Growth 43% -69% 87% 10% 41%

EB IT M ar g in 20% 23% 8% 12% 11% 13%

Other income 347 413 331 634 474 474

% Growth 19% -20% 92% -25% 0%

% o f Ne t Sal e s 3% 3% 2% 4% 2% 2%

EBIT(including Other Income) 2,762 3,859 1,393 2,616 2,652 3,552

Interest Expense 495 550 605 797 867 977

% Growth 11% 10% 32% 9% 13%

% o f Ne t Sal e s 4% 4% 5% 5% 4% 4%

Profit before tax & exceptionals 2,267 3,309 788 1,820 1,784 2,575

% Growth 46% -76% 131% -2% 44%

% o f Ne t Sal e s 19% 22% 6% 11% 9% 11%

Exceptional Item 0 0 0 -392 0 0

PBT 2,267 3,309 788 1,427 1,784 2,575

% Growth 46% -76% 81% 25% 44%

% o f Ne t Sal e s 19% 22% 6% 8% 9% 11%

Tax 481 897 197 340 438 658

% of PBT 21% 27% 25% 24% 25% 26%

% o f Ne t Sal e s 4% 6% 1% 2% 2% 3%

Profit after tax from ordinary activities 1,786 2,411 591 1,088 1,346 1,917

% Growth 35% -75% 84% 24% 42%

PAT M ar g in 15% 16% 4% 6% 7% 8%

PAT (excluding exceptionals) 1,786 2,411 591 1,480 1,346 1,917

Share of Profit in Associates

Minority interest

PAT 1,786 2,411 591 1,088 1,346 1,917

Number of Shares(in Mn) 122 122 122 122 118 118

EPS 14.6 19.7 4.8 8.9 11.4 16.3

(` in mn except EPS)



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Exhibit 36 - Balance Sheet

Exhibit 37 - Cash Flow Statement


JKLC


Period Ended 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-1

Sources of Funds

Share capital 612 612 612 612 589 589

Reserves and surplus 7,701 9,595 9,851 11,140 11,917 13,570

Net Worth 8,313 10,207 10,463 11,752 12,506 14,159

Minority Interest

Loans 7,027 9,217 8,681 9,454 11,954 15,454

Deferred tax liabilities 351 921 1,072 1,233 1,233 1,233

Total Liabilities 15,690 20,345 20,217 22,439 25,693 30,845

Application of Funds

Gross Block 17,605 19,036 23,186 24,500 28,964 36,791

Less:Depreciation 7,474 8,407 9,376 11,207 12,588 14,342

Net block 10,131 10,630 13,810 13,293 16,376 22,449

Goodwill 0 0 0 0 0 0

Capital work in progress 970 1,820 409 2,941 3,476 2,649

Investment 889 4,805 5,278 4,538 4,538 4,538

Current assets 6,320 6,656 4,880 7,085 6,622 6,948

Current liabilities and provisions 2,620 3,566 4,161 5,418 5,320 5,738

Net Current assets 3,700 3,091 720 1,667 1,302 1,209

Misc Expense 0 0 0 0 0 0

Total Assets 15,690 20,345 20,217 22,439 25,693 30,845

JKLC



PBT 2,267 3,309 788 1,820 1,784 2,575

Depreciation & Amortisation 691 800 846 1,297 1,381 1,754

Interest and finance charges 495 550 605 797 867 977

(Profit)/Loss on sale / w rite off of Fixed Assets -48 -65 -195 -544 0 0

Interest and Dividend Income -286 -344 -96 -56 -474 -474

Other Adj 4 5 3 0 0 0

Change in Working Capital 253 -98 -17 897 -307 237

Net cash flow from operating activities 3,117 3,566 1,745 3,778 2,813 4,412

(Purchase)/Sales of Fixed Asset -2,246 -2,307 -3,104 -4,874 -5,000 -7,000(Purchase)/sale of Investments -749 -3,852 -282 1,278 0 0

Dividend Income 0 24 6 0 474 474

Interest Income 339 277 205 61 0 0

Net cash flow from investing activities -2,656 -5,857 -3,175 -3,536 -4,526 -6,526

Proceeds/(Repayments) from borrowings -58 2,145 861 895 2,500 3,500

Payment of dividends & tax thereon -107 -429 -215 -176 -275 -264

Interest and finance charges paid -511 -537 -602 -798 -867 -977

(Buyback)/Proceeds from issue of Share Capital 0 0 0 -1 -328 0

Short-term borrowings (net) 7 50 94 -169 0 0

Net cash flow from financing activities -670 1,229 139 -248 1,030 2,258

Net increase in Cash and cash equivalents -209 -1,063 -1,291 -5 -683 144

Opening Cash and cash equivalents 3,476 3,267 2,204 913 909 226

Closing Cash and cash equivalents 3,267 2,204 913 909 226 370

(` in mn)

(` in mn)



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Exhibit 38 - Key Ratios


KEY RATIOS

Particulars FY09 FY10 FY11 FY12 FY13 E FY14 E

Growth (%)

Net Sales 22% -11% 30% 14% 21%

EBITDA 37% -55% 72% 9% 36%

EBIT 43% -69% 87% 10% 41%

PBT 46% -76% 81% 25% 44%

PAT 35% -75% 84% 24% 42%

Gearing Ratio (X)

Net Debt to Equity 0.45 0.76 0.75 0.77 0.97 1.13

Coverage Ratios (X)

Interest Coverage 5 6 2 2 3 3

Yield (%)

Dividend Yield 0.0% 0.0% 1.8% 1.8% 1.8%

Margins (%)

EBITDA 25% 28% 14% 19% 18% 20%

EBIT 20% 23% 8% 12% 11% 13%

PBT 19% 22% 6% 8% 9% 11%

PAT 15% 16% 4% 6% 7% 8%

Profitability (%)

Operating Return on Asset (OROA) 34% 20% 8% 13% 12% 14%

Return on Asset (ROA) 20% 11% 2% 4% 5% 6%

Return on Equity(ROE) 21% 26% 6% 10% 11% 14%

Return on Capital Employed (ROCE) 17% 20% 6% 10% 8% 9%

Turnover (X)

Total Asset turnover 1.3 0.7 0.5 0.7 0.7 0.7

Fixed Asset turnover (Net Block) 1.2 1.4 1.1 1.3 1.3 1.2

Fixed Asset turnover (Gross Block) 0.7 0.8 0.6 0.7 0.7 0.7

Inventory Turnover 13.8 15.2 12.0 11.6 12.5 13.4

Receivables Turnover 52.5 51.4 47.3 44.9 48.9 48.9

Payables Turnover 11.5 13.7 14.6 12.3 12.9 12.9

Working Capital Cycle (Days)

Inventory Days 27 24 30 32 29 27

Debtor days 7 7 8 8 7 7

Payable days 32 27 25 30 28 28

Per Share (`)

Earnings 14.6 19.7 4.8 8.9 11.4 16.3

Dividends 2.0 1.5 1.2 1.9 1.9 1.9

Book Value 67.9 83.4 85.5 96.0 106.3 120.3

Cash (including investments) 34.0 57.3 50.4 44.4 40.3 41.6

Du pont analysis

PAT/Net worth(%) 21% 26% 6% 10% 11% 14%

Net profit Margin (%) 15% 16% 4% 6% 7% 8%

Asset turnover (X) 1.3 0.7 0.5 0.7 0.7 0.7

TA/Networth 1.1 2.3 2.3 2.4 2.4 2.5

Valuations (X)

EV/EBITDA 5.3 5.6 4.8

EV/Sales 1.0 1.0 1.0

EV/Tonne capacity (`) 3,638 3,767 2,741

P/E 12.2 9.5 6.6

P/B 1.1 1.0 0.9

Mcap/Sales 0.8 0.7 0.5

Mcap/Total Assets 0.5 0.4 0.3



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____________________________________________________________________________________

Mangalam Cement

Greenfield expansionplan on track,to impelvolume ledgrowth.

Presence inbetterperformingmarkets to bode well.

Self sufficiency inpower& savings inopex to improve margins.

MCLis trading at attractive valuations.

Mangalam Cement have plans to enhance its clinker capacity by 0.50 mtpa at existingunits byApril, 2013. Itis setting upa new1.25mtpaclinkergrinding unin Morak (Rajasthan) by CY13 end. Post expansion the capacity of tcompanywould increase to3.25 mtpa.

Mangalam Cement is present in Haryana, Madhya Pradesh, Rajasthan, UttPradesh and Delhi. Its majority sales come from Rajasthan and Uttar Pradeboth accounting for 65%-70% of its Revenue. Its majority exposure to bettperforming markets tobode well for thecompany.

We expect EBITDA/tonne to improve from 634/tonne in FY12 806/tonne in FY14, growing at an impressive CAGR of 12.7% over the ne

two years. Consumption in limestone has gone down by moving to pet cokfrom coal.We seeEBITDA margins to improve over thenext coupleof years.

We initiate coverage on Mangalam Cement with a BUYRating with a target priof 179 , valuing it using EV/Tonne Method. At the recommendation price o162, the stock is trading at 6.9x and 6.3x its FY13E and FY14E earningrespectively. The stock is trading at an EV/EBITDA of 4.7x and 4.2x FY13andFY14EEBITDA, respectively.

`

`

`

MCL

Key Financials

(In ` mn) FY 11 FY 12 FY 13 E FY 14 E

Net Sales 4,916 6,221 6,872 7,963growth (%) -19.9% 26.6% 10.5% 15.9%

EBITDA 634 1,035 1,287 1,543

growth (%) -66.9% 63.2% 24.4% 19.9%

PAT 382 560 629 690

growth (%) -67.8% 46.4% 12.3% 9.8%

EPS 14.3 21.0 23.6 25.9

EBITDA Margin 12.9% 16.6% 18.7% 19.4%

NPM 7.8% 9.0% 9.2% 8.7%

ROE 9.8% 13.5% 13.8% 13.8%

EV/EBITDA 4.2 4.7 4.2

P/E 7.7 6.9 6.3

P/B 1.0 0.9 0.8

Recommendation BUY



ndustry Cement


Shares O/S (Mn) 27

Face Value 10

Key Indices

BSE Sensex 18835

NSE Nifty 5721

Stock Info

BSE Code MANGALC

BSE Code No. 502157

NSE Code MANGLMCEM

Bloomberg MGC:IN

Reuters Code MGLC.BO

52-Week High 156

52-Week Low 76

Market Stats



Promoters27.4%

FII's 0.2%MF/Ins

Cos/FI's/Banks 1.6%Others

70.9%



inesh Sarat Sheth

22 6159 [email protected]

ource: NSE, BSE, MCL, A C Choksi Institutional Research

C Choksi Institutional Research | Initiation Report| Mangalam Cement

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____________________________________________________________________________________

Greenfieldexpansionplan on track,to impelvolume ledgrowth.

Presence in betterperformingmarkets to bode well.

Mangalam Cement have plans to enhance its clinker capacity by 0.50 mtpa at its existing units April, 2013. It is setting up a new 1.25 mtpa clinker grinding unit in Morak (Rajasthan) by CY13 enCurrently MCL has two cement plants in Morak District of Kota, Rajasthan having a combincapacity of 2mtpa. Post expansion the capacity of the company would increase to 3.25 mtpa. Thwould require MCL to incur a capex of 4,750 mn, out of which it has incurred around 370 mnFY12.ItplanstospreadthebalanceinFY13&FY14.

MCL has enhanced proportion of retail sales from 54% in FY11 to 79% in FY12. It is foraying inunexplored markets within itsexistingregions.It has two captivecoal based power plant of 17.5Meach based near its cement plant at Kota, Rajasthan. It generated 143.2m Kwh of thermal powerFY12 as against 121.7m Kwh previous fiscal. It has wind energy capacity of 13.65 MW at Jaisalm

Rajasthan. It was able to generate 17.9m Kwh of power through its wind mill in FY12 as again12mKwhinFY11.

Mangalam Cement is present in Haryana, Madhya Pradesh, Rajasthan, Uttar Pradesh and Delhi. Imajority sales come from Rajasthan and Uttar Pradesh both accounting for 65%-70% of Revenue. Delhi is another major market for the company. It has ~65% exposure in NortheMarkets and ~35% in Central Markets. Its majority exposure to better performing markets to bowell for the company. It operates in regions having a consumption share of around 34%. The stat

which MCL caters to has a combined share in consumption of ~28%. Its top three markeRajasthan, UP & Delhi has shareof around19%in thenations consumption. Capacityutilizationthe Northern region has seen improvement from 73% to 79% in the past one year and the same fCentral regionshasbeen moreor lessthe sameataround87%.

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____________________________________________________________________________________

We expect EBITDA/tonne to improve from 634/tonne in FY12 to 806/tonne in FY14, growiat an impressive CAGR of 12.7% over the next two years. The company has captive powgeneration capacity of 48.7 MW; comprising of 35 MW of coal based thermal power plant and tbalance as wind power plant. The company would be self sufficient in power even after feeding expanded capacity of 3.25mtpa. The company would be in a position to sell surplus power providthe tariff is remunerative.

MCL have shifted to more expensive pet coke from coal for producing cement. Even though thmove is not expected to bring down the cost, it has managed to bring down the consumption limestone. High grade Limestoneconsumption hasgonedown from16% to 8%-9%dueto usagepet coke as against coal in manufacture of cement. We see EBITDA margins to improve by ~2

basispointsover the nextcoupleof yearsfrom16.6% inFY12 to19.4% inFY14E.

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Self sufficiency inpower& savings inopex to improve margins.

Exhibit 39 - Power Self Sufficiency

70%

75%

80%

85%

90%

95%

100%

0

20

40

60

80

100

120

140

160

180

FY 09 FY 10 FY 11 FY 12



98 95 98105

82 81 7973

0

20

40

60

80

100

120

FY 09 FY 10 FY 11 FY 12

MCL NSC

Exhibit 40 - Electricity Consumption-(Kwh/T of Cement)

Source: MCL, A C Choksi Institutional Research



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____________________________________________________________________________________

Weinitiate coverage with a BUY Rating on Mangalam Cement with a target price of 179 ,valuing it using EV/Tonne Method.

`


MCL is trading at FY 14 E EV/tonne of US$40. We have valued the company by applying EV/tonne of US$43 on its FY 14 E capacity of 3.25 million tonnes. Its implied EV/EBITDAcomes to 4.5 at FY 14 E EBITDA of 1,543 mn. Our target prices comes to 179. The compancurrentdividendyield ishealthy, webelieve it tohave FY14E dividendyield of 4.0%.

` `

Grid

Valuation & Risk

Growth

Value

High

Risk

Medium

Risk

Low

Risk

Risk Factor


Top Shareholders Shares in Mn %

Kesoram Industries Ltd 3.82 14.31%

Century Textiles & Inds. Ltd 2.22 8.32%

Other Promoter group entities 1.26 4.73%

Promoter Group 7.30 27.36%

Birla Sun Life Insurance Company Limited 1.26 4.71%

Aditya Marketing And Manufacturing Limited 0.97 3.63%

Total 26.69 100.00%


Exhibit 41 -Shareholding



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____________________________________________________________________________________


Valuation


EV/Tonne Capacity multiple ($) 43.00


Add Cash & Cash equivalents 610

Less Debt 2,827

Less Minority Interest 0Equity Value 4,770


Target price 179



Implied EV/EBITDA

EBITDA 1,543


EV/EBITDA (X) 4.5





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____________________________________________________________________________________


Exhibit - Balance Sheet

Exhibit - Cash Flow Statement

32


MLC


Period Ended 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 31-Mar-13 31-Mar-1Income

Net Sales 5,641 6,137 4,916 6,221 6,872 7,963

% Growth 9% -20% 27% 10% 16%

Employee cost 223 236 304 323 365 422

% Growth 6% 29% 6% 13% 16%

% o f Ne t Sal e s 4% 4% 6% 5% 5% 5%


% Growth 17% 5% -7% 12% 15%

% o f Ne t Sal e s 13% 14% 19% 14% 14% 14%

Power and Fuel 1,409 1,552 1,527 1,647 1,960 2,299

% Growth 10% -2% 8% 19% 17%

% o f Ne t Sal e s 25% 25% 31% 26% 29% 29%Outward Freight Charges on Cement 1,334 1,247 1,305 1,706 1,894 2,116

% Growth -7% 5% 31% 11% 12%

% o f Ne t Sal e s 24% 20% 27% 27% 28% 27%

Other Expenditure 441 424 409 553 609 681

% Growth -4% -3% 35% 10% 12%

% o f Ne t Sal e s 8% 7% 8% 9% 9% 9%

Total Expenditure 4,279 4,222 4,327 5,273 5,664 6,513

% Growth -1% 2% 22% 7% 15%

% o f Ne t Sal e s 76% 69% 88% 85% 82% 82%

EBITDA 1,362 1,914 634 1,035 1,287 1,543

% Growth 41% -67% 63% 24% 20%

EB IT DA M ar g i n 24% 31% 13% 17% 19% 19%

Depreciation 243 254 275 320 425 490

% Growth 4% 8% 16% 33% 15%

% o f Ne t Sal e s 4% 4% 6% 5% 6% 6%EBIT 1,120 1,661 359 714 862 1,052

% Growth 48% -78% 99% 21% 22%

EB IT M ar g i n 20% 27% 7% 11% 13% 13%

Other income 258 200 77 66 83 45

% Growth -22% -62% -14% 25% -46%

% o f Ne t Sal e s 5% 3% 2% 1% 1% 1%

EBIT(including Other Income) 1,377 1,861 436 780 945 1,097


% Growth -38% 12% 42% 203% 74%

% o f Ne t Sal e s 1% 0% 0% 0% 1% 2%

Profit before tax & exceptionals 1,346 1,841 414 749 850 934

% Growth 37% -78% 81% 13% 10%

% o f Ne t Sal e s 24% 30% 8% 12% 12% 12%

Exceptional Item -26 0 0 0 0 0

PBT 1,320 1,841 414 749 850 934% Growth 39% -78% 81% 13% 10%

% o f Ne t Sal e s 23% 30% 8% 12% 12% 12%

Tax 348 653 31 190 221 243

% of PBT 26% 35% 8% 25% 26% 26%

% o f Ne t Sal e s 6% 11% 1% 3% 3% 3%

Profit after tax from ordinary activities 972 1,188 382 560 629 690

% Growth 22% -68% 46% 12% 10%

PAT M arg i n 17% 19% 8% 9% 9% 9%

PAT (excluding exceptionals) 997 1,188 382 560 629 690

Share of Profit in Associates 0 0 0 0 0 0

Minority interest 0 0 0 0 0 0

PAT 972 1,188 382 560 629 690


EPS 34.7 44.5 14.3 21.0 23.6 25.9

(` in mn except EPS)



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Exhibit 45 - Balance Sheet

33


MLC



Sources of Funds

Share capital 280 267 267 267 267 267

Reserves and surplus 2,663 3,601 3,680 4,056 4,499 4,988

Net Worth 2,943 3,868 3,947 4,323 4,766 5,255

Minority Interest

Loans 155 102 398 427 1,987 2,827

Deferred tax liabilities 525 492 591 618 618 618

Total Liabilities 3,623 4,462 4,937 5,368 7,371 8,699Application of Funds

Gross Block 5,015 5,082 6,287 6,594 8,927 10,287

Less:Depreciation 2,250 2,501 2,776 3,069 3,494 3,985

Net block 2,765 2,581 3,511 3,525 5,432 6,303

Goodwill 0 0 0 0 0 0

Capital work in progress 48 632 81 189 256 295

Investment 81 195 11 11 11 11

Current assets 2,205 3,013 2,801 3,520 3,567 4,051

Current liabilities and provisions 1,476 1,960 1,467 1,878 1,896 1,961

Net Current assets 729 1,054 1,334 1,642 1,671 2,090

Misc Expense 0 0 0 0 0 0

Total Assets 3,623 4,462 4,937 5,368 7,371 8,699

ML C


Period Ended 31-M ar-09 31-M ar-10 31-M ar-11 31-M ar-12 31-M ar-13 31-M ar-1

PBT 1,346 1,841 414 749 850 934

Depreciation & Amortisation 243 254 275 320 425 490

Interest and finance charges 32 20 22 31 94 164

(Profit)/Loss on sale / write off of Fixed Assets -66 0 0 6 0 0

Other Adj -132 -12 -5 1 0 0

Change in Working Capital 362 -57 -531 -133 -177 -124Net cash flow from operating activities 1,363 1,282 -27 763 888 1,176

(Purchase)/Sales of Fixed Asset -412 -655 -655 -450 -2,400 -1,400

(Purchase)/sale of Investments -47 -101 190 0 0 0

Dividend Income 7 9 2 0 83 45

Interest Income 29 69 83 48 0 0

Net cash flow from investing activities -422 -678 -381 -401 -2,317 -1,355

Proceeds/(Repayments) from borrowings -436 -54 33 105 1,560 840

Payment of dividends & tax thereon -164 -170 -185 -185 -186 -186

Interest and finance charges paid -34 -20 -22 -31 -94 -164

Net cash flow from financing activities -645 -345 -174 -111 1,280 490

Net increase in Cash and cash equivalents 296 260 -582 250 -149 311

Opening Cash and cash equivalents 145 441 701 119 369 220

Closing Cash and cash equivalents 441 701 119 369 220 531

Exhibit 46 -Cash Flow Statement


(` in mn)

(` in mn)


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Exhibit 47 - Ratio Analysis

34


KEY RATIOS

Particulars FY09 FY10 FY11 FY12 FY13 E FY14 E

Growth (%)

Net Sales 9% -20% 27% 10% 16%

EBITDA 41% -67% 63% 24% 20%

EBIT 48% -78% 99% 21% 22%

PBT 39% -78% 81% 13% 10%

PAT 22% -68% 46% 12% 10%

Gearing Ratio (X)

Net Debt to Equity -0.10 -0.18 0.04 0.00 0.37 0.44

Coverage Ratios (X)

Interest Coverage 35 85 16 23 9 6Yield (%)

Dividend Yield 3.9% 3.9% 4.3%

Margins (%)

EBITDA 24% 31% 13% 17% 19% 19%

EBIT 20% 27% 7% 11% 13% 13%

PBT 23% 30% 8% 12% 12% 12%

PAT 17% 19% 8% 9% 9% 9%

Profitability (%)

Operating Return on Asset (OROA) 53% 33% 10% 15% 16% 15%

Return on Asset (ROA) 38% 21% 6% 8% 8% 7%

Return on Equity(ROE) 33% 35% 10% 14% 14% 14%

Return on Capital Employed (ROCE) 32% 35% 8% 12% 10% 10%

Turnover (X)

Total Asset turnover 2.2 1.1 0.8 0.9 0.8 0.8Fixed Asset turnover (Net Block) 2.0 2.3 1.6 1.8 1.5 1.4

Fixed Asset turnover (Gross Block) 1.1 1.2 0.9 1.0 0.9 0.8

Inventory Turnover 9.0 7.9 6.9 8.2 9.0 8.8

Receivables Turnover 97.9 66.8 41.7 21.7 21.1 19.9

Payables Turnover 10.8 9.1 10.2 12.6 11.5 12.3

Working Capital Cycle (Days)

Inventory Days 41 46 53 44 40 41

Debtor days 4 5 9 17 17 18

Payable days 34 40 36 29 32 30

Per Share (`)

Earnings 34.7 44.5 14.3 21.0 23.6 25.9

Dividends 5.5 6.0 6.0 6.0 6.0 6.5

Book Value 105.0 144.9 147.9 161.9 178.5 196.8

Cash (including investments) 18.6 33.6 10.1 16.8 11.2 22.8

Du pont analysis

PAT/Net worth(%) 33% 35% 10% 14% 14% 14%

Net profit Margin (%) 17% 19% 8% 9% 9% 9%

Asset turnover (X) 2.2 1.1 0.8 0.9 0.8 0.8

TA/Networth 0.9 1.7 1.6 1.7 1.8 2.0

Valuations (X)

EV/EBITDA 3.9 4.5 4.1

EV/Sales 0.6 0.8 0.8

EV/Tonne capacity (`) 2,021 2,876 1,932

P/E 7.3 6.5 5.9

P/B 0.9 0.9 0.8

Mcap/Sales 0.7 0.6 0.5

Mcap/Total Assets 0.6 0.4 0.4



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Orient Paper


ource: NSE, BSE, MCL, A C Choksi Institutional Research

Promoters37.5%

FII's 2.0%MF/FI's/Banks 20.8%

InsuranceCos 13.4%

Others26.3%


3 mtpa cement capacity expansion plan in Karnataka, shifting to valuadded productin thepaperbusiness

Commission andstabilizationof itspowerplant to rationalizethecosts

Attractivevaluations

Value unlocking through De-merger of cement business.

Orient Paper is planning to set up a 3 million tonne cement plant in Karnatakwhich should be operational by FY15. Land acquisition for the greenfield Gulbarga districtof Karnataka hasreached anadvancedstage

Orient Paper has received the High Courts approval for de-merger of t

cement business of OPIL into Orient Cement Ltd (OCL). The de-mergwould be value accretive for the company. OPIL expects to complete the dmergerprocess over thenext quarterandwill list Orientcementseparately.

Its new 50 MW power plant stabilized and enabled OPIL to meet most of power requirement for the Devapur cement plant. The company is in thadvanced stages of commissioning 55MW power plant. The commissioning opower plant is expected to bring in cost savings for the company and will alcontributetowardsstabilizing itsoperations.

We believe at CMP of 74, Orient Papers is trading at an attractive valuatioconsidering valueunlocking through de-merger inon cards. We initiate coverawith a BUY Rating on Orient Papers with a target price of 83 , valuing it usinEV/EBITDAMethod.

`

`

C Choksi Institutional Research | Initiation Report| Orient Paper

Recommendation BUY



ndustry Cement


hares O/S (Mn) 205

Face Value 1

Key Indices

BSE Sensex 18835

NSE Nifty 5721

tock Info

BSE Code ORIENTP

BSE Code No. 502420

NSE Code ORIENTPPR

Bloomberg OPI IN

Reuters Code ORPP.BO

2-Week High 76

2-Week Low 44

Market Stats



Orient Paper

Key Financials

(In ` mn) FY 11 FY 12 FY 13 E FY 14 E

Net Sales 19,279 24,334 26,866 30,182

growth (%) 19.0% 26.2% 10.4% 12.3%EBITDA 3,183 4,268 4,552 4,932

growth (%) 3.6% 34.1% 6.7% 8.4%

PAT 1,431 2,123 2,368 2,752

growth (%) -10.2% 48.3% 11.6% 16.2%

EPS 7.4 10.4 11.6 13.4

EBITDA Margin 16.5% 17.5% 16.9% 16.3%

NPM 7.4% 8.7% 8.8% 9.1%

ROE 17.2% 21.2% 19.5% 19.4%

EV/EBITDA 4.1 3.7 3.4

P/E 7.1 6.4 5.5

P/B 1.4 1.2 1.0

50

60

70

80

90

100

110

120

130

26/09/2011 26/12/2011 26/03/2012 26/06/2012 26/09/2012

OPIL Sensex

inesh Sarat Sheth

22 6159 [email protected]


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3 mtpa cementcapacity expansionplan in Karnataka, shifting to valueadded product in thpaper business

Orient Paper is planning to set up a 3 million tonne cement plant in Karnataka, which should boperational by FY15. Land acquisition for the greenfield in Gulbarga district of Karnataka hreached an advanced stage.The company will place orders for the plant and equipment in 1HFY1The capacity utilization was higher at around 77% against the industry average of 68% in South West. The company was able to maintain better proportion of blended cement in its product mix~73% compared to industry average of 47%inAndhraPradesh.

OPIL has a 3 million tonne Devapur, Andhra Pradesh and 2 million tonne plant in JalgaoMaharashtra. With commissioning of 3mtpa plant in Karnataka; OPILs cement capacity wenhance to 8 mtpa. Around 65% of OPILs sales come from western markets & around 30% salcome fromSouthern markets.The remaining is through Central andEasternregions.

OPIL expects an improvement in the writing and printing paper market with gradual absorption oovercapacity through regular demand growth. Newpower plant will result in cost saving to itspapbusiness. Paperdemandin India is peggedat around6%,whereas growth invalue added tissuepapproduct is seen around 20%.OPIL is one of the largest producers of tissue paper in India. Share tissuepaperin the product mix havegone up to25.6% from 20.4% in FY12. Withstabilization of 2nd tissue plant it would further be able to increase its tissue paper production. Product mix expected to tilt more towards value added tissuepaper.

Owing to slow down in construction activities, the Indian fan industry registered a de-growth o2.8% compared to the previous year. OPIL has augmented the Fan manufacturing capacity to 8mfansper annumfrom5 mn. OrientPSPOisretailedat nearly50% of all fan retailers.

OPIL earns around 57% of its revenues from cement segment and around 30% from electicals anthe balance 13% from Paper. We expect cement contribution to increase by 89 bps over the necoupleof years.

Cement57%

Electricals30%

Paper13%

Source: OPIL, A C Choksi Institutional Research

Exhibit 48 - Business Segments


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Value unlocking through De-merger of cement business.

Commission andstabilizationof itspowerplant to rationalizethecosts.

OrientPaperhas receivedtheHigh Courts approval forde-merger of the cementbusiness of OPIinto Orient Cement Ltd (OCL) with effect from 1st April 2012. The de-merger would be valuaccretive for the company. OPIL expects to complete the de-merger process over the next quartand will list Orient cement separately. The demerger would be through a classical demerger schemunderwhichallshareholdersof OrientPaper& Industries Limited as on therecorddate will receivsharesof OrientCement Limited in theratioof 1:1.

Its new 50 MWpower plant stabilized and enabled OPIL to meet most of its power requirementfthe Devapur cement plant. The company is in the advanced stages of commissioning55MW pow

plant. The commissioning of power plant is expected to bring in cost savings for the company anwill also contribute towards stabilizing its operations.15-20 MW surplus power is expected to bavailable from the new power plant for the paper business. OPIL is expected to benefit by sellinsurplus power.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY9 FY10 FY11 FY12



Exhibit 49 - Captive Power



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Attractivevaluations

We believe at CMP of 74, Orient Papers is trading at an attractive valuation, considering valunlocking through de-merger in on cards. We initiate coverage with a BUY Rating on Orient Papewith a target price of 83 , valuing it using EV/EBITDAMethod.


OPIL is trading at FY 14 E EV/tonne of US$67. We have valued the company by applying aEV/EBITDA of 3.75( ) on itsFY 14E EBITDA of 4,932mn.ItsimpliedEV/Tonne(US$) comto US$74 at FY 14 E cement capacityof 5mtpa. Our target price comes to 83. We believe it to haFY14E dividend yieldof 2.7%.

`

`

`

`

`

X

Grid

Valuation & Risk

Growth

Value

High

Risk

Medium

Risk

Low

Risk

Risk Factor

Top Shareholders Shares in Mn %

Central India Ind. Ltd. 49.14 23.99%Shekavati Inv. & Traders Ltd. 12.32 6.01%

Nirmala Birla 3.67 1.79%

Other Promoter Group 11.69 5.71%

Promoter Group 76.83 37.50%

Rel. Cap Trustee Co. Ltd. 14.34 7.00%

ICICI Pru. Life Insu. Co. Ltd. 9.27 4.53%

LIC 8.45 4.12%

Total 204.87 100.00%


Exhibit 50 -Shareholding



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Valuation


EV/EBITDA multiple (X) 3.8


Add Cash & Cash equivalents 3,450

Less Debt 5,016

Less Minority Interest 0

Equity Value 16,932


Target price 83



Implied EV/$

EBITDA 4,932

EV (in ` ) 18,497

EV/Tonne (USD) 74.0





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Orient Paper



Income

Net Sales 15,032 16,198 19,279 24,334 26,866 30,182

% Growth 8% 19% 26% 10% 12%

Employee cost 856 1,066 1,191 1,468 1,632 1,765

% Growth 25% 12% 23% 11% 8%

% o f Ne t Sa l e s 6% 7% 6% 6% 6% 6%


% Growth 32% 27% 21% 10% 13%

% o f Ne t Sa l e s 24% 30% 32% 30% 30% 30%

Power and Fuel 2,146 2,680 3,299 4,069 4,821 5,653

% Growth 25% 23% 23% 18% 17%

% o f Ne t Sa l e s 14% 17% 17% 17% 18% 19%Outward Freight 1,883 1,887 2,572 3,219 3,624 4,005

% Growth 0% 36% 25% 13% 11%

% o f Ne t Sa l e s 13% 12% 13% 13% 13% 13%

Other Expenditure 3,050 2,957 3,422 4,628 4,920 5,488

% Growth -3% 16% 35% 6% 12%

% o f Ne t Sa l e s 20% 18% 18% 19% 18% 18%

Total Expenditur e 11,605 13,124 16,617 20,639 22,944 25,943

% Growth 13% 27% 24% 11% 13%

% o f Ne t Sa l e s 77% 81% 86% 85% 85% 86%

EBITDA 3,427 3,074 3,183 4,268 4,552 4,932

% Growth -10% 4% 34% 7% 8%

EB IT DA M ar g in 23% 19% 17% 18% 17% 16%

Depreciation 347 550 815 884 892 924

% Growth 58% 48% 8% 1% 4%

% o f Ne t Sa l e s 2% 3% 4% 4% 3% 3%EBIT 3,080 2,523 2,368 3,384 3,660 4,009

% Growth -18% -6% 43% 8% 10%

EB IT M ar g in 20% 16% 12% 14% 14% 13%

Other income 228 163 167 223 234 484

% Growth -29% 2% 34% 5% 107%

% o f Ne t Sa l e s 2% 1% 1% 1% 1% 2%

EBIT(including Other Income) 3,308 2,686 2,535 3,607 3,894 4,493


% Growth 67% 27% -4% -15% 7%

% o f Ne t Sa l e s 1% 2% 2% 2% 1% 1%

Profit before tax & exceptionals 3,101 2,341 2,095 3,183 3,535 4,107

% Growth -25% -11% 52% 11% 16%

% o f Ne t Sa l e s 21% 14% 11% 13% 13% 14%

Exceptional Item 0 0 0 0 0 0

PBT 3,101 2,341 2,095.112 3,183 3,535 4,107

% Growth -25% -11% 52% 11% 16%

% o f Ne t Sa l e s 21% 14% 11% 13% 13% 14%

Tax 1,100 748 664 1,061 1,166 1,355

% of PBT 35% 32% 32% 33% 33% 33%

% o f Ne t Sa l e s 7% 5% 3% 4% 4% 4%

Profit after tax from ordinary activities 2,001 1,593 1,431 2,123 2,368 2,752

% Growth -20% -10% 48% 12% 16%

P AT M ar g i n 13% 10% 7% 9% 9% 9%

PAT (excluding exceptionals) 2,001 1,593 1,431 2,123 2,368 2,752

Share of Profit in Associates 0 0 0 0 0 0

Minority interest 0 0 0 0 0 0

PAT 2,001 1,593 1,431 2,123 2,368 2,752


EPS 10.4 8.3 7.4 10.4 11.6 13.

Cement Small Cap ACChoksi

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