India cement sector: Time to sell? - · PDF filePage 2 Indian cement sector – time to...

India cement sector:Time to sell?

Rakesh Arora, CFAMacquarie Capital Securities Pvt. (India) Ltd.

Level – 3, Mafatlal Center, Nariman PointMumbai (India) – 400021

June 2011

Macquarie Research is a division of Macquarie Group Limited, an affiliate and parent company of Macquarie Capital (USA) Inc., a registered broker - dealer and member of The Financial Industry Regulatory Authority (“FINRA”). All transactions by U.S. investors involving securities discussed in this report must be effected through Macquarie Capital (USA) Inc., which assumes responsibility in the U.S. for the contents of this report.

This research report has been prepared in whole or part by foreign research analysts. These research analysts are not registered/qualified as a research analyst with FINRA, but instead have satisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that have been recognized for these purposes by FINRA.

Please read Disclaimer on Pages 23-25

Indian cement sector – time to book profitsProxy to domestic growth story: Long-term demand story remains intact. However, in the short term, demand has been extremely weak, with April at 0% and May expected to come out negative. Supply overhang to offset demand growth: Capacity addition has been strong, with 35mt in FY11 and 25mt in FY12, oversupply of ~10% expected.Prices down as demand lags supply: Though prices have recently seen some recovery, concerns on oversupply remain, and we expect prices to remain under pressure.Margins have started to come under pressure: Companies have already seen a decline in margins YoY on higher costs. Although there will be some recovery in FY12E as prices recover slowly, higher costs should keep margin recovery muted. Top short ideas: ACEM and ACC –valuations look rich

Source: Bloomberg, Macquarie Research, June 2011 Prices as of May 31, 2011

FY2011 FY2012 FY2013 FY2011 FY2012 FY2013 FY2011 FY2012 FY2013ACC UP 1,026 940 -8% 18.0x 15.6x 13.0x 11.3x 8.7x 6.5x 129 126 113 Ambuja UP 139 129 -7% 16.8x 17.0x 14.5x 10.4x 8.5x 6.9x 159 151 136 Grasim OP 2,300 2,696 17% 9.8x 8.0x 7.6x 4.4x 2.9x 2.7x 99 62 74 India Cement OP 84 109 29% 39.7x 10.7x 6.5x 11.6x 6.1x 4.0x 71 65 58 Ultratech UP 1,026 870 -15% 20.6x 12.5x 9.8x 10.4x 7.0x 5.7x 144 129 124

Upside (%)

India Cement companies valuation snapshot

Reco Current Price (Rs)

Target price (Rs)Valuation Snapshot EV/t (US$)EV/EBITDAPER

Long-term demand will remain strong …

Per capita consumption of cement

0

200

400

600

800

1000

1200

1400C

hina

Indi

a

US

Japa

n

Spai

n

Rus

sia

Italy

Sth

Kore

a

Turk

ey

Braz

il

Mex

ico

Iran

Viet

nam

Indo

nesi

a

Egyp

t

Saud

i Ara

bia

Thai

land

Ger

man

y

Fran

ce

Mal

aysi

a

Kgs/pa

A long way to go

Cement consumption in India has almost 1:1 correlation with GDP growthEven though GDP growth is slowing, it is still expected to be above 7% in short term and 8% in medium to long termThis means cement consumption demand growth still likely at 8-9%In addition, we believe continued focus on infrastructure projects will help dissipate pressure on cement consumptionPer-capita consumption in India one of the lowest, even among developing countries

Source: CMIE, Macquarie Research, June 2011 Source: International Cement Review, Macquarie Research, June 2011

Source: CMIE, Macquarie Research, June 2011

GDP vs cement consumption since 1991

0

20

40

60

80

100

120

140

160

180

700 1,200 1,700 2,200 2,700 3,200 3,700

GDP (RsCr '000)

(mt)

0

2

4

6

8

10

12

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Qua

rter

ly G

DP

grow

th (%

) Forecast

… but near-term demand is moderating pace

Source: CMA, Macquarie Research, June 2011


State FY10 FY11 Last 6 monthsHaryana 11% 0% -1%

Punjab 18% 12% 6%Rajasthan 1% 4% 4%Bihar 39% 11% 4%Orissa 12% 9% 11%West Bengal 22% 15% 13%Andhra Pradesh -2% -17% -28%Tamil Nadu 11% 4% 1%Karnataka 4% 6% -3%Kerala 5% 0% -2%Gujarat 19% 12% 5%Maharashtra 7% 8% 8%Uttar Pradesh 22% 9% 7%Madhya Pradesh 14% 10% 9%

Demand growth (%) YoY in states with over 5mt of annual demand

Regional variation in demand growth


North India 3th moving average demand growth change

-20%-10%

0%10%20%30%

40%50%

Apr-

92Ap

r-93

Apr-

94Ap

r-95

Apr-

96Ap

r-97

Apr-

98Ap

r-99

Apr-

00Ap

r-01

Apr-

02Ap

r-03

Apr-

04Ap

r-05

Apr-

06Ap

r-07

Apr-

08Ap

r-09

Apr-

10Ap

r-11

% East India 3th moving average demand growth change

-20%

-10%

0%

10%

20%

30%

40%

Apr-9

2Ap

r-93

Apr-9

4Ap

r-95

Apr-9

6Ap

r-97

Apr-9

8Ap

r-99

Apr-0

0Ap

r-01

Apr-0

2Ap

r-03

Apr-0

4Ap

r-05

Apr-0

6Ap

r-07

Apr-0

8Ap

r-09

Apr-1

0Ap

r-11

%

South India 3th moving average demand growth change

-20%-15%-10%-5%0%5%

10%15%20%25%30%

Apr-9

2Ap

r-93

Apr-9

4Ap

r-95

Apr-9

6Ap

r-97

Apr-9

8Ap

r-99

Apr-0

0Ap

r-01

Apr-0

2Ap

r-03

Apr-0

4Ap

r-05

Apr-0

6Ap

r-07

Apr-0

8Ap

r-09

Apr-1

0Ap

r-11

% West India 3th moving average demand growth change

-20%

-10%

0%

10%

20%

30%

40%

Apr-9

2Ap

r-93

Apr-9

4Ap

r-95

Apr-9

6Ap

r-97

Apr-9

8Ap

r-99

Apr-0

0Ap

r-01

Apr-0

2Ap

r-03

Apr-0

4Ap

r-05

Apr-0

6Ap

r-07

Apr-0

8Ap

r-09

Apr-1

0Ap

r-11

%Central India 3th moving average demand growth change

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

%

All India 3 mnth moving average demand growth change

-20%-15%-10%-5%0%5%

10%15%20%25%30%

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

%

Supply overhang: fundamentals are weak hereCement prices increasing but

under pressure; Clinker inventory increasing slowly

About 70 million tons of new supply has been added in FY10 and FY11, outpacing

demand growth easily.Source: CMAI, Macquarie Research, June 2011


Capacity utilisation

93 92

103

89 88 87 8581

7680 81

89 8984

8884 83

78 7572 72

82

66

76 78 77

86

50

60

70

80

90

100

110

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

100120140160180200220240260280300

Mar

'98

Mar

'99

Mar

'00

Mar

'01

Mar

'02

Mar

'03

Mar

'04

Mar

'05

Mar

'06

Mar

'07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

101214161820222426

Cement prices (Rs/bag) - LHS Clinker stock (days) 12 mth avg - RHS

All India Cement oversupply

-

5.0

10.0

15.0

20.0

25.0

30.0

2009-10 2010-11E 2011-12E 2012-13E

mt


Surplus – creeping undetected, more than what we need

Surplus capacity is coming: We believe the new capacity will continue to hit in FY12 as well.

Regional variations in surplus: The surplus should hit different regions over different periods of time, with South India likely to be most affected.

Substantial overcapacity has

come in 2011.

Source: CMAI, Macquarie Research, June 2011

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11E 2011-12E 2012-13EClinker Capacity 122.8 125.0 136.1 142.4 150.9 184.5 200.2 222.2 240.4 Clinker Production 109.4 116.3 121.4 129.7 138.5 153.9 174.7 194.8 208.6 Capacity Utilisation 89.1% 93.1% 89.2% 91.1% 91.8% 83.4% 87.3% 87.7% 86.8%Less Clinker export 6.0 3.2 3.1 2.2 2.6 3.1 2.4 2.4 2.4 Less Clinker sale 2.3 2.3 2.3 3.0 3.8 5.3 4.1 4.1 4.1 Net Clinker 101.1 110.8 116.0 124.5 132.1 145.5 168.2 188.3 202.2 Conversion factor 1.25 1.29 1.33 1.35 1.37 1.38 1.38 1.38 1.39 Cement Capacity 154.3 160.2 165.7 189.4 213.2 257.5 292.2 337.4 358.8 Cement Production 126.2 142.5 154.7 168.3 181.5 200.4 232.9 260.5 280.0 Cement Capacity Utilisation 82% 89% 93% 89% 85% 78% 80% 77% 78%Less Cement export 4.1 6.0 6.1 3.7 3.2 2.2 2.1 2.1 2.1 Net Cement Available 122.1 136.5 148.6 164.6 178.3 198.2 230.8 258.4 277.9 Demand @ 9% 123 135 149 164 178 196 213 232 252 Gap (0.9) 1.5 (0.2) 0.6 0.6 1.1 16.3 24.8 23.5

Cement prices – a sharp decline in near future

Cement prices have recovered in the past few weeks, especially in South. Prices have recovered modestly in other regions.We expect price recovery to help margins, however, costs have also inched up which will keep profit recovery muted.

Source: CMAI, Macquarie Research, June 2011

Monthly cement prices

180

200220

240260

280300

320

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep-

09O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb-

10M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0Se

p-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

(Rs/bag)

West South

Monthly cement prices

180

200

220

240

260

280

300

Apr

-09

May

-09

Jun-

09Ju

l-09

Aug

-09

Sep-

09O

ct-0

9N

ov-0

9D

ec-0

9Ja

n-10

Feb-

10M

ar-1

0A

pr-1

0M

ay-1

0Ju

n-10

Jul-1

0A

ug-1

0Se

p-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

(Rs/bag)

North East Central

Price decline + Cost increase = Margin erosion

With increase in coal costs, the average cost will continue to

trend up

We expect this to result in margin decline for all

cement companies in FY11 and beyond


EBITDA/tonne

200

400

600

800

1,000

1,200

1,400

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

Rs/t

ACC ACEM ICEM UTCEM

Average Cost per ton

1,6761,817

2,0692,257

2,663 2,679

2,993 3,101 3,1593,277

0

500

1000

1500

2000

2500

3000

3500

FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E

Rs/ton

Indian cement companies

Grasim Industries (GRASIM IN)

ACC (ACC IN)

Ambuja Cements (ACEM IN)

India Cements (ICEM IN)

Ultratech Cements (UTCEM IN)

Grasim Industries (GRASIM IN, Outperform)Key share data and performance vs. Sensex Financial Estimates and valuation ratios

Source: Company data, Macquarie Research, June 2011

Source: Bloomberg, June 2011

Grasim Industries GRASIM INRecommendation OutperformTarget price (Rs) 2,696 Current price (Rs) 2,300 % upside (downside) 17%Market cap (Rsm) 210,887 Market cap (US$m) 4,686

FY09A FY10A FY11E FY12E FY13EProfit & LossNet sales Rsm 171,871 195,124 196,219 230,382 262,785 EBITDA Rsm 41,878 57,598 44,732 56,219 63,986 % margin % 24% 30% 23% 24% 24%PAT Rsm 21,385 29,063 21,564 26,399 27,886 EPS Rs 233.2 317.0 235.2 287.9 304.1

Balance SheetShareholders' equity Rsm 115,578 125,246 145,586 168,430 192,762 Total Debt Rsm 58,931 55,992 67,827 52,295 53,295 Cash & equivalents Rsm 14,454 12,802 67,600 65,477 54,599 Net debt Rsm 21,435. (12,856) (13,920) (47,450) (35,570) Total Assets Rsm 207,132 238,844 276,543 292,870 329,340 Cash flowCash from operationsRsm 44,514 70,190 48,332 61,932 68,967 Capex Rsm (25,956) (17,104) (9,635) (48,000) (52,470) FCF Rsm 18,558 53,087 38,697 13,932 16,497 Cash from financing Rsm (8,905) (31,756) (24,701) (17,875) (23,498)

RatiosPER (x) x 9.86 7.26 9.78 7.99 7.56 EV/t US$ 99 5 99 62 74 EV/EBITDA x 5.5 3.4 4.4 2.9 2.7 P/BV x 1.82 1.68 1.45 1.25 1.09 Dividend Yield % 1.4% 1.4% 1.4% 1.4% 1.4%RoE % 19% 23% 15% 16% 14%Net debt to equity x 0.2x -0.1x -0.1x -0.3x -0.2x

GRASIM vs Sensex

0

50

100

150

200

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11Grasim India Sensex

ACC (ACC IN, Underperform)


Key share data and performance vs. Sensex Financial Estimates and valuation ratios


ACC ACC INRecommendation UnderperformTarget price (Rs) 940 Current price (Rs) 1026% upside (downside) -8%Market cap (Rsm) 192,909 Market cap (US$m) 4,287

CY08A CY09A CY10A CY11E CY12EProfit & LossNet sales Rsm 77,221 84,795 82,588 97,330 111,866 EBITDA Rsm 16,648 24,622 15,406 19,349 23,410 % margin % 22% 29% 19% 20% 21%PAT Rsm 10,996 15,638 10,742 12,364 14,893 EPS Rs 58.5 83.2 57.1 65.8 79.2

Balance SheetShareholders' equity Rsm 48,267 58,723 62,832 72,117 83,710 Total Debt Rsm 4,820 5,669 5,247 3,299 3,299 Cash & equivalents Rsm 9,915 7,544 10,856 14,171 30,637 Net debt Rsm (9,803) (13,330) (19,216) (24,480) (40,946) Total Assets Rsm 56,508 67,939 71,747 80,790 94,451 Cash flowCash from operationsRsm 23,196 23,743 24,068 15,580 28,274 Capex Rsm (12,334) (12,641) (13,559) (3,422) (3,971) FCF Rsm 10,862 11,102 10,508 12,158 24,303 Cash from financing Rsm (5,722) (4,546) (5,919) (8,843) (7,837)

RatiosPER (x) x 17.53 12.34 17.96 15.60 12.95 EV/t US$ 176 149 129 126 113 EV/EBITDA x 11.0 7.3 11.3 8.7 6.5 P/BV x 3.99 3.29 3.07 2.67 2.30 Dividend Yield % 1.0% 1.3% 1.3% 1.4% 1.5%RoE % 23% 27% 17% 17% 18%Net debt to equity x -0.2x -0.2x -0.3x -0.3x -0.5x

ACC vs Sensex

0

50

100

150

200

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

ACC India Sensex

ACC Ltd. - assumptions

Source: Company data, Macquarie Research, June 2011Source: Company data, Macquarie Research, June 2011

2007 2008 2009 2010 2011E 2012E 2013EVolume (m tonne) 19.9 21.1 21.7 21.2 23.8 26.3 28.0 % change 6% 6% 3% -3% 13% 10% 6%Realization (Rs./T) 3,254 3,334 3,600 3,535 3,677 3,787 3,976 % change 13% 2% 8% -2% 4% 3% 5%Power & Fuel Cost (Rs./ 627 764 714 761 831 877 932 % change 15% 22% -7% 7% 9% 5% 6%Transport Cost (Rs./T) 479 484 495 518 543 571 599 % change 5% 1% 2% 5% 5% 5% 5%EBITDA/ tonne (Rs/t) 972 789 1,134 728 812 891 1,002 % change 11% -19% 44% -36% 12% 10% 12%Cost/t 2,282 2,545 2,466 2,808 2,864 2,896 2,974

12% -3% 14% 2% 1% 3%

ACC cost breakup movement

972 789 1,134728 812 891

445 529583

685 716 765177 212

185235 234 238627 764

714761 831 877472 473

503532

541568853 893

785 960951

919

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E

(R s/ t )

EBITDA/t Raw material/t Staff cost/t Energy/t Freight/t Other cost/t

Staff cost6%

Other expenditure

28%

Raw material cost23%

Pow er & fuel24%

Outw ard freight17%

Excise duties0%

Purchase of cement

2%

1,500

2,000

2,500

3,000

3,500

4,000

3QC

Y06A

1QC

Y07A

3QC

Y07A

1QC

Y08A

3QC

Y08A

1QC

Y09A

3QC

Y09A

1QC

Y10A

3QC

Y10A

1QC

Y11A

ASP/t

-

200

400

600

800

1,000

1,200

1,400

1,600EBITDA/t

ACC – valuation charts

Source: Macquarie Research, June 2011

ACC - 1 yr fwd EV/EBITDA

-

5

10

15

20

25

30

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

ACC - EV/ton of capacity

-

50

100

150

200

250

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

US$

ACC - 1 yr fwd PER

-

5

10

15

20

25

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

ACC - 1 yr fwd P/BV

-

1.0

2.0

3.0

4.0

5.0

6.0

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Ambuja Cements (ACEM IN, Underperform)




Ambuja Cement ACEM INRecommendation UnderperformTarget price (Rs) 129 Current price (Rs) 139% upside (downside) -7%Market cap (Rsm) 211,337 Market cap (US$m) 4,696

CY08A CY09A CY10A CY11E CY12EProfit & LossNet sales Rsm 62,347 70,635 73,910 84,100 94,785 EBITDA Rsm 17,779 18,523 18,237 21,132 24,414 % margin % 29% 26% 25% 25% 26%PAT Rsm 10,939 12,035 12,371 12,459 14,621 EPS Rs 9.2 7.9 8.3 8.1 9.6

Balance SheetShareholders' equity Rsm 56,729 64,707 73,301 80,950 90,762 Total Debt Rsm 2,887 1,657 650 640 620 Cash & equivalents Rsm 8,518 8,807 17,482 26,540 38,363 Net debt Rsm (7,706) (13,170) (23,045) (32,213) (44,057) Total Assets Rsm 63,423 71,222 79,260 87,166 97,271 Cash flowCash from operationsRsm 10,263 18,925 18,560 20,843 24,777 Capex Rsm (4,759) (8,741) (7,712) (8,723) (9,723) FCF Rsm 5,504 10,184 10,848 12,120 15,054 Cash from financing Rsm (4,336) (5,505) (5,619) (4,819) (4,829)

RatiosPER (x) x 15.06 17.56 16.79 17.03 14.51 EV/t US$ 226 203 159 151 136 EV/EBITDA x 11.4 10.7 10.4 8.5 6.9 P/BV x 3.72 3.27 2.89 2.62 2.34 Dividend Yield % 1.6% 1.7% 1.9% 1.9% 1.9%RoE % 19% 19% 17% 15% 16%Net debt to equity x -0.1x -0.2x -0.3x -0.4x -0.5x

ACEM vs Sensex

0

50

100

150

200

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11

ACEM India Sensex

Ambuja Cement - assumptions




ACEM cost breakup movement

1,173 1,000 985 898 972 1,027

261 344 513 302 239 243120 150 145

169 177 181576 746 757

836 954 984548 569 597 620 663 688627

733734 842

865 864

-500

1,0001,5002,0002,500

3,0003,5004,0004,500

CY2007 CY2008 CY2009 CY2010 CY2011E CY2012E

(R s/ t )


2007 2008 2009 2010 2011E 2012E 2013EVolume (m tonne) 17.4 17.8 18.8 20.3 21.7 23.8 26.3 % change 2% 6% 8% 7% 9% 10%Realization (Rs./T) 3,271 3,507 3,757 3,641 3,869 3,988 4,191 % change 7% 7% -3% 6% 3% 5%Power & Fuel Cost (Rs./T) 576 746 757 836 954 984 1,024 % change 30% 1% 10% 14% 3% 4%Freight Cost (Rs./T) 548 569 597 620 663 688 717 % change 4% 5% 4% 7% 4% 4%EBITDA/ tonne (Rs/t) 1,173 1,000 985 898 972 1,027 1,150 % change -15% -1% -9% 8% 6% 12%Cost/t 2,099 2,507 2,746 2,770 2,897 2,961 3,041

19% 10% 1% 5% 2% 3%

ACEM 1QFY11 cost breakup

Power & Fuel30%

Freight32%

Raw M aterial8%

Staff Cost6%

Other expenditure

24%

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0

200

400

600

800

1,000

1,200

1,400

Realisation EBITDA

Ambuja Cements – valuation charts


ACEM - 1 Yr Fwd EV/EBITDA

-

2

4

6

8

10

12

14

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

1 Yr Fwd PER

-

5

10

15

20

25

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

ACEM - EV/t

-

50

100

150

200

250

300

350

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

(US$/t) ACEM - 1 Yr Fwd P/BV

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

May

-06

Nov

-06

May

-07

Nov

-07

May

-08

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

India Cements (ICEM IN, Outperform)




India Cements ICEM INRecommendation OutperformTarget price (Rs) 109 Current price (Rs) 84 % upside (downside) 29%Market cap (Rsm) 25,895 Market cap (US$m) 575

FY09A FY10A FY11 FY12E FY13E FY14EProfit & LossNet sales Rsm 34,749 38,083 36,223 44,384 53,093 58,399 EBITDA Rsm 10,431 8,635 4,343 7,677 10,285 11,545 % margin % 30% 23% 12% 17% 19% 20%PAT Rsm 4,320 3,544 652 2,413 3,989 4,675 EPS Rs 15.3 12.5 2.1 7.9 13.0 15.2

Balance SheetShareholders' equity Rsm 36,314 41,358 40,897 42,526 45,734 49,561 Total Debt Rsm 19,880 21,327 24,561 32,965 30,965 27,965 Cash & equivalents Rsm 852 538 55 12,294 15,224 14,500 Net debt Rsm 19,007 20,768 24,485 20,650 15,720 13,445 Total Assets Rsm 58,935 65,585 68,383 79,153 81,667 84,054 Cash flowCash from operations Rsm 7,892 3,531 2,280 13,235 11,949 9,381 Capex Rsm (9,543) (2,963) (5,038) (6,500) (4,000) (4,000) FCF Rsm 1,651- 568 2,758- 6,735 7,949 5,381 Cash from financing Rsm (1,878) 772. 1,267. 5,696. (5,019) (6,105)

RatiosPER (x) x 5.51 6.72 39.73 10.73 6.49 5.54 EV/t US$ 92 80 71 65 58 55 EV/EBITDA x 4.1 5.4 11.6 6.1 4.0 3.4 P/BV x 0.7 0.6 0.6 0.6 0.6 0.5 Dividend Yield % 2.8% 2.8% 1.8% 2.4% 3.0% 3.6%RoE % 12% 9% 2% 6% 9% 9%Net debt to equity x 0.5x 0.5x 0.6x 0.5x 0.3x 0.3x

ICEM vs Sensex

0

50

100

150

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11ICEM India Sensex

India Cements - assumptions



2009 2010 2011 2012E 2013E 2014EVolume (m tonne) 9.11 10.49 10.29 11.45 13.44 14.11 % change -1% 15% -2% 11% 17% 5%Realization (Rs./t) 3,814 3,478 3,520 3,876 3,949 4,140 % change 14% -9% 1% 10% 2% 5%Power & Fuel Cost (Rs./t) 990 962 1,014 1,037 1,000 1,032 % change 31% -3% 5% 2% -4% 3%Transport Cost (Rs./t) 495 569 646 711 746 784 % change 6% 15% 14% 10% 5% 5%EBITDA/ tonne (Rs/t) 1,145 789 422 670 765 818 % change -6% -31% -46% 59% 14% 7%Cost/ tonne (Rs/t) 2,669 2,689 3,098 3,206 3,184 3,321 % change 25% 1% 15% 3% -1% 4%

2,000

2,500

3,000

3,500

4,000

4,500

-

200

400

600

800

1,000

1,200

1,400

LHS - Realisation (Rs/t) RHS - EBITDA (Rs/t)

c

ICEM - 4Q FY3/11 cost break up

Staff Cost8%

Energy31%

Freight16%

Other26%

Raw M aterial19%

India Cements cost breakup - energy cost to decline

1,214 1,145789 422 670 765 818

339 406452

542579 616 645

222 249253

253246 226 233

748 979913

1,0141,037 1,000 1,032

461489

540 646711 746 784361

546531 643

634 596628

-500

1,000

1,5002,000

2,5003,000

3,500

4,0004,500

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

(R s/ t )


Ultratech Cements (UTCEM IN, Underperform)




Ultratech Cements UTCEM INRecommendation UnderperformTarget price (Rs) 870 Current price (Rs) 1,026 % upside (downside) -15%Market cap (Rsm) 127,752 Market cap (US$m) 2,839

FY09A FY10A FY11 FY12E FY13E FY14EProfit & LossNet sales Rsm 63,831 70,497 129,071 176,529 208,845 236,454 EBITDA Rsm 16,913 19,710 25,573 39,335 49,242 57,890 % margin % 26% 28% 20% 22% 24% 24%PAT Rsm 9,619 10,932 13,443 22,101 28,181 33,037 EPS Rs 77.3 87.8 50 82 104 122

Balance SheetShareholders' equity Rsm 36,113 46,195 107,362 127,955 154,325 185,552 Total Debt Rsm 21,429 16,071 38,999 37,045 36,545 36,045 Cash & equivalents Rsm 10,942 17,184 37,594 26,466 19,150 10,290 Net debt Rsm 10,730. (969) 1,405. 10,579. 17,394. 25,755. Total Assets Rsm 64,885 69,580 163,805 182,276 207,980 238,540 Cash flowCash from operations Rsm 14,477 15,931 34,245 39,599 50,137 60,058 Capex Rsm (8,516) (2,754) (9,740) (31,000) (36,000) (45,000) FCF Rsm 5,961 13,177 24,505 8,599 14,137 15,058 Cash from financing Rsm 1,915 (7,401) (12,706) (14,506) (15,461) (17,157)

RatiosPER (x) x 13.28 11.69 20.61 12.54 9.83 8.39 EV/t US$ 158 129 144 129 124 128 EV/EBITDA x 8.2 6.4 10.4 7.0 5.7 5.0 P/BV x 3.54 2.77 2.46 2.07 1.71 1.43 Dividend Yield % 0.5% 0.6% 0.3% 0.5% 0.6% 0.6%RoE % 27% 24% 13% 17% 18% 18%Net debt to equity x 0.3x -0.0x 0.0x 0.1x 0.1x 0.1x

UTCEM vs Sensex

0

50

100

150

200

May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11UTCEM India Sensex

Ultratech Cements - assumptions



Assumptions FY09A FY10A FY11A FY12E FY13E FY14EVolume (m tonne) 18.3 20.2 35.3 45.3 51.1 55.4 % change 6% 11% 75% 28% 13% 8%Realization (Rs./T) 3,498 3,486 3,656 3,897 4,086 4,269 % change 10% 0% 5% 7% 5% 4%Energy Cost (Rs./T) 939 708 836 847 876 914 % change 29% -25% 18% 1% 3% 4%Transport Cost (Rs./T) 676 679 767 802 843 875 % change 6% 0% 13% 5% 5% 4%EBITDA/ tonne (Rs/t) 927 975 724 868 963 1,045 % change -7% 5% -26% 20% 11% 9%Cost/t 2,571 2,511 2,932 3,028 3,122 3,224 % change 17% -2% 17% 3% 3% 3%

Ultratech cost breakup movement

998 927 975 724 868 963 1,045

311 375 475493 507 524 54397 119 124 171 172 166 168726 939 708 836 847 876 914

639676 679 767

802 843 875420461 526 665

700 713 724

-500

1,0001,5002,0002,500

3,0003,5004,0004,500

FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E FY2014E

(R s/ t )


927975

724

868963

1,045

-

200

400

600

800

1,000

1,200

FY09A FY10A FY11A FY12E FY13E FY14E-30%

-20%

-10%

0%

10%

20%

30%

EBITDA/ tonne (Rs/t) % change

3,498 3,4863,656

3,8974,086

4,269

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY09A FY10A FY11A FY12E FY13E FY14E-2%

0%

2%

4%

6%

8%

10%

12%

Realization (Rs./T) % change

Ultratech Cements – valuation sheets


UTCEM - 1 Yr Fwd EV/EBITDA

2

3

4

5

6

7

8

9

10

Apr-

06

Oct

-06

Apr-

07

Oct

-07

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

Oct

-10

Apr-

11

UTCEM - 1 Yr Fwd EV/t

-

50

100

150

200

250

Apr-

06

Oct

-06

Apr-

07

Oct

-07

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

Oct

-10

Apr-

11

UTCEM 1 Yr Fwd PER

-

3

6

9

12

15

18

21

Apr-

06

Oct

-06

Apr-

07

Oct

-07

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

Oct

-10

Apr-

11

UTCEM - 1 Yr Fwd P/BV

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Apr-

06

Oct

-06

Apr-

07

Oct

-07

Apr-

08

Oct

-08

Apr-

09

Oct

-09

Apr-

10

Oct

-10

Apr-

11

Important disclosures:

Financial definitions

All "Adjusted" data items have had the following adjustments made:

Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expenseExcluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests

EPS = adjusted net profit /efpowa*ROA = adjusted ebit / average total assetsROA Banks/Insurance = adjusted net profit /average total assetsROE = adjusted net profit / average shareholders fundsGross cashflow = adjusted net profit + depreciation*equivalent fully paid ordinary weighted average number of shares

All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Volatility index definition*This is calculated from the volatility of historic price movements.

Very high–highest risk – Stock should be expected to move up or down 60-100% in a year – investors should be aware this stock is highly speculative.

High – stock should be expected to move up or down at least 40-60% in a year – investors should be aware this stock could be speculative.

Medium – stock should be expected to move up or down at least 30-40% in a year.

Low–medium – stock should be expected to move up or down at least 25-30% in a year.

Low – stock should be expected to move up or down at least 15-25% in a year.

* Applicable to Australian/NZ stocks only

Recommendation – 12 months

Note: Quant recommendations may differ from Fundamental Analyst recommendations

Recommendation definitions

Macquarie - Australia/New Zealand

Outperform – return > 3% in excess of benchmark returnNeutral – return within 3% of benchmark return Underperform – return > 3% below benchmark return

Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe

Outperform – expected return >+10%Neutral – expected return from -10% to +10%Underperform – expected <-10%

Macquarie First South - South Africa

Outperform – return > 10% in excess of benchmark returnNeutral – return within 10% of benchmark returnUnderperform – return > 10% below benchmark return

Macquarie - Canada


Macquarie - USA


Recommendation proportions – For quarter ending 31 March 2011

13.11%35.73%51.16%

EUR

(for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)(for US coverage by MCUSA, 17.55% of stocks covered are investment banking clients)(for US coverage by MCUSA, 14.36% of stocks covered are investment banking clients)

4.66%26.43%68.91%

CA

3.89%10.45%15.28%14.86%Underperform53.09%29.85%19.00%39.49%Neutral43.02%59.70%65.72%45.65%Outperform

USARSAAsiaAU/NZ

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