The Indian Cement Industry[1][1]

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June 23rd, 2010

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INDIAN CEMENT INDUSTRY

SECTORAL REPORT

Janaki Rao.U

AnalystEquity Research Desk

[email protected]

V.S.R. SastryVice PresidentEquity Research Desk91-22-25276077 [email protected]

Dr. V.V.L.N. Sastry Ph.D.Chief Research Officer

[email protected]

Highlights

• India is the world's second largest producer of cement with totalcapacity of 219 million tonnes (MT) at the end of FY 2009.

• The Indian cement industry will add bout 50 million tonne cementcapacity in 2010, taking the total to around 280 million tonne.

• The government’s initiatives in the infrastructure and housingsectors are likely to be the main drivers of growth for the industry in the long run. Good agricultural income has supported demandfor the commodity despite slowdown in real estate sector.

• The Indian government has considered spending more than US$500 billion on infrastructure in the 11th Five Year Plan. This planincludes building road infrastructure, which will require 75million metric tons of cement and power infrastructure thatdemands around 45 million metric tons of cement.

• The upcoming SEZs in areas such as Bangalore, Bhubaneswar,Indore, Nasik and Pune would further boost the demand forcement.

• Industry experts forecast that the growth pattern in cement isexpected to continue further due to the increased level of construction activities taking place across India.

• The government’s continued thrust on infrastructure will help thekey building material to maintain an annual growth of 9-10 percent in 2010.

• Indian population growing at the rate of 1.5% would also act as abenefit for the cement industry as it would boost the overalldemand for housing and in turn cement.

• Banking on continued buoyancy in cement demand, foreigninstitutional investors (FIIs) raised their stake in top Indiancement companies during the quarter ended March 31, 2010.

• The induction of advanced technology has helped the industry immensely to conserve energy and fuel and to save materialssubstantially and hence reduce the cost of production.



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1. Sector Overview

Sector structure/Market size

India is the world's second largest producer of cement with total capacity of 219 million

tonnes (MT) at the end of FY 2009, according to the Cement Manufactuer’s Association.

According to the Cement Manufacturer’s Association, cement despatches during 2009-

10 were 159.43 million tonnes (MT) increasing by 12 per cent over 142.23 in 2008-09.

Cement production during 2009-10 was 160.31 MT an increase of 12.37 per cent over

142.65 MT in 2008-09.

Moreover, the government’s continued thrust on infrastructure will help the key

building material to maintain an annual growth of 9-10 per cent in 2010. In January

2010, rating agency Fitch predicted that the country will add add about 60 million

tonne cement capacity in 2010, taking the total to around 280 million tonne.

Industry Key Prospects:

Strong Growth in Economy:

The industry is likely to maintain its growth momentum and continue growing at

around 8% to 9% in the medium to long term. Government initiatives in the

infrastructure sector and the housing sector are likely to be the main drivers of growth

for the industry. In the recent past, demand has surpassed supply, resulting in healthy

cement prices across the country.



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Huge capacity expansion plans

However, this scenario is likely to reverse as the industry has lined up huge capacity

expansion plans. With the growth in the sector and waning demand supply gap, cement

producers have lined up capacity expansion plans either by brownfield or greenfiled

expansion route.The fresh capacities announced till date will add up around 65 MT to

the existing capacity (219 MT), and are expected to go on stream by FY11. As the

capacities become operational, which has started taking place, supply may once again

outstrip demand putting downward pressure on margins. The relief may be provided if

there are delays in any of the proposed expansion plans.

Growing Infrastructure spending

While infrastructure spending has been a boon, there was also a strong cushion from

the steady growth of the construction sector (read housing). However, recently the

demand has slowed down as real estate and construction activities in the urban areas

have taken a back seat with economic slowdown. The importance of the housing sector

in cement demand can be gauged from the fact that it consumes almost 60%-70% of

the country’s cement. If this support wanes, it would impact the growth in consumption

of cement, leading to demand supply mismatch. Also, the hike in prices of coal and

petroleum products could impact cement companies’ margins.

The government has increased budgetary allocation for roads under NHDP. Further,

with more incentives being spelled out for the infrastructure and housing sector,

cement manufacturers will continue to benefit. The budget measures such as

increasing excise duties have proved to be futile and in the future too, we believe that it

is the market dynamics that will determine these variables.



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Raising agricultural income

Good agricultural income has supported demand for the commodity despite slowdown

in real estate sector. Going forward, we believe the government’s initiatives in the

infrastructure and housing sectors are likely to be the main drivers of growth for the

industry in the long run.

Status of the Indian Cement Industry over the periods

Trends in the Cement Industry during Five-Year Plans



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Indian Cement Industry Demand Drivers

Future prospectus of the Indian Cement Industry

High spending on infrastructure projects and growing demand for housing units will

fuel the Indian cement industry. Despite the gloomy outlook for the world economy.

Infrastructure:

The Indian government has considered spending more than US$ 500 billion on

infrastructure in the 11th Five Year Plan. This plan includes building road

infrastructure, which will require 75 million metric tons of cement and power

infrastructure that demands around 45 million metric tons of cement.



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Apart from this, railways, urban infrastructure, ports, airports, IT & ITES sector,

organized retailing, shopping malls and multiplexes will be the main sectors driving the

demand of cement in the country, says the report. Besides this, the housing sector is

also one of the key drivers for the cement industry and accounts for more than 40% of

total cement demand. To further boost the housing demand in the country, many

nationalized banks have reduced their interest rates on housing loans. As a result, the

number of houses constructed is expected to increase from 3.6 million in 2007 to 6

million units by 2011. This concrete growth in the housing sector will lead to huge

cement demand in the country.

Commonwealth Games:

Industry experts forecast that the growth pattern in cement is expected to continue

further due to the increased level of construction activities taking place across India.

One of the reasons for this is that Delhi, the capital of India, is home to the 2010

Commonwealth Games.

Estimated Production:

The current cement industry is expected to grow to produce 223.0 million tonnes in

2009 from 198.30 million tonnes of the 2008. 67

Estimated exports:

The target for export has been estimated to be 11 million tonnes and 13 million

respectively for 2011 and 2012.



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SEZs Developments:

The upcoming SEZs in areas such as Bangalore, Bhubaneswar, Indore, Nasik and Pune

would further boost the demand for cement.

Increase in Population:

Indian population growing at the rate of 1.5% would also act as a benefit for the cement

industry as it would boost the overall demand for housing and in turn cement.

Mergers and Acquistions (M&As)

• Dalmia Cement has increased its stake in OCL India to 45.4 per cent from 21.7 per

cent at an investment of US$ 38.24 million as part of its plan to expand its footprint

in eastern India.

• In April 2010, French cement maker Vicat bought 51 per cent in Bharathi Cement.

• Ultratech Cement, the country’s second-largest cement maker and a part of Aditya

Birla group is acquiring Dubai-based ETA Star Cement for an enterprise value of

US$ 382.1 million.



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New Investments

Cement and gypsum products have received cumulative foreign direct investment (FDI)

of US$ 1.71 billion between April 2000 and February 2010, according to the

Department of Industrial Policy and Promotion

• In January 2010, Swiss cement company Holcim announced plans to invest US$ 1

billion for setting up 2-3 greenfield manufacturing plants in India in the next five

years. The expansion will take the company’s total cement-making capacity to 60

mtpa (million tonnes per annum) from 50 mtpa currently.

• Jaiprakash Associates Ltd will invest US$ 984.1 million to take its cement

manufacturing capacity from 20 mtpa to 33 mtpa by 2012.

• Madras Cements Ltd is planning to invest US$ 178.4 million to increase the

manufacturing capacity of its Ariyalur plant in Tamil Nadu to 4.5 MT from 2 MT by

April 2011.

• Monnet Ispat & Energy (MIEL) will set up cement plants in Chhattisgarh and Gujarat

with an investment of about US$ 527.9 million. Work on the two plants will begin in

the October-December quarter under a new division of the company to be christened

Monnet Cement.



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• Ambuja Cements, the country’s third-largest cement maker, plans to spend aroundUS$ 756.3 million to expand its capacity to 24 mtpa from the current 19 mtpa by

year-end to meet strong demand from the infrastructure sector.

Government Initiatives

Government initiatives in the infrastructure sector, coupled with the housing sector

boom and urban development, continue being the main drivers of growth for the Indian

cement industry.

• Increased infrastructure spending has been a key focus area. In the Union Budget

2010-11, US$ 37.4 billion has been provided for infrastructure development.

• The government has also increased budgetary allocation for roads by 13 per cent to

US$ 4.3 billion.



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Current Trends:

Cement industry hits 10.5% growth in FY10

Buoyant demand from the infrastructure space and individual home builders in rural

and semi-urban regions of the country has made the cement industry hit double-digit

growth in 2009-10, after a gap of three years. The industry with over 50 players

despatched 199.98 million tonne of the building material compared with 181.01 million

tonne in the previous year - a rise of 10.48 per cent.

Laying IT on Month-wise growth in FY10

Month Dispatches Growth % (y-o-y)

April 16.70 13.37

May 16.51 11.10

June 16.72 12.97

July 15.95 10.08

August 15.47 17.29

September 14.73 6.20



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October 15.37 7.48

November 15.73 9.01

December 17.87 11.62

January 18.19 12.77

February 17.11 6.34

March 19.63 8.33

Total 199.98 10.48

All figures in million tonnes Source : Cement Manufacturers' Association & companies

However, the year-ending month witnessed lower than expected demand as industry

could clock only a growth of 8.33 per cent. The despatches for the month stood at

19.63 million tonnes against industry’s experts’ anticipation of over 20 million

tonnes.The industry added close to 40 million tonnes in 2009-2010, taking the

production capacity to around 260 million tonne from 219 million tonne last year. In

the current financial year, the industry is expected to add around 40 million tonnes

more capacity to take it to 300 million tonnes.

The year saw consistently robust demand through the year which helped cement

makers raise the prices too. Currently, the average national price of a 50 kg bag of

cement is in the range of Rs 245-250.



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Robust growth in April

The 252-million-tonne domestic cement industry showed year-on-year growth of 9 per

cent in April, on the back of robust despatch figures posted by the major companies.

Continued robust demand and newer capacities going on stream have helped. For

instance, the Aditya Birla Group has posted a rise of 6.2 per cent in its despatches at

3.38 mt in April.

Holcim-owned Ambuja Cements sold 16 per cent more, as its despatch stood at 1.9 mt

against 1.6 mt last year. North-based Jaiprakash Associates continued to perform far

better. Its despatches were 57 per cent more, at 1.25 mt against 0.8 mt in April last

year.

(Million Tonnes)

Description Apr-10 Mar-10 Apr-09 2010-2011 2009-2010

(Apr)

CementProduction

14.70 15.85 13.40 14.70 13.40

CementDespatches

14.45 15.89 13.26 14.45 13.26



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FIIs eye cement sector, raise stakes in firms

Banking on continued buoyancy in cement demand, foreign institutional investors (FIIs)

raised their stake in top Indian cement companies during the quarter ended March 31

(see chart).

Domestic cement demand has been robust in spite of capacity additions in the sector.

Cement consumption witnessed double-digit growth at 10.6 per cent to about 200

million tonnes in the 12 months ended March 31. Cement production, too, grew 10.8

per cent to 201 million tonnes. Most companies saw capacity utilisation well in excessof 100 per cent, with the national average at 96 per cent.

In early 2009, the Indian economy was in a recession and the cement industry faced

prospects of substantial capacity addition, while there was no sign of demand going up.

However, all projections of a slowing in demand were belied — capacity addition got

delayed, demand remained robust and prices were firm.

Concrete Plans

Company FII stake as on Dec 31,

2009 (in %) FII stake as on Mar

31, 2010

Prism Cement 2.10 4.43

Shree Cement 4.17 4.87

UltraTech 4.83 10.93

ACC 11.08 12.56

Ambuja 22.91 24.14

India Cements 27.48 27.70

Source: BSE



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Growth was registered across all regions, led by rapid developments in infrastructureand a stable housing sector. The demand-supply scenario was generally at balance,

with high levels of capacity utilisation in most regions,” says the 2009 annual report of

ACC, the country’s biggest cement producer.

Surya to set up 5 MMTPA cement plant in Gujarat

With a Rs 4,000 crore investment lined up for a possible five million metric tonne

cement plant in Gujarat, Surya Group is mulling public issue of its subsidiary company

Surya Global Cement Ltd. in the near future. Having commenced production of its first

factory in Gujarat of GI and API pipes at an investment of Rs 400 crore, the group now

intends to sign a memorandum of understanding (MoU) with the state government for a

mega cement plant in Kutch district at the upcoming Vibrant Gujarat Global Investors'

Summit (VGGIS) 2011. Banking on the commencement of its large GI and API pipesplant in Bhuj as well as expansion of its lighting systems unit in Gwalior, Surya Group

expects its turnover to grow from Rs 2,000 crore pegged in the financial year 2009-10

to Rs 5,000 crore in next two years.

Madras Cements to invest Rs 800 cr

Madras Cements Ltd is planning to invest around Rs 800 crore to increase the

manufacturing capacity of its Ariyalur plant in Tamil Nadu. The company has also

proposed to set up a 65-Mw coal-based power plant for captive purpose.



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My Home Industries to invest Rs 4,500 crore

My Home Industries Limited (MHI), a 50:50 joint venture between the Hyderabad-based

My Home Group and Ireland's building material major CRH Plc, plans to scale up its

cement production capacity from the existing five million tonne per annum (mtpa) to 15

mtpa by 2016. MHI, known for its Maha Shakthi' brand of cement, would undertake

this capacity expansion at a cost of $1 billion (around Rs 4,500 crore).

Ambuja opens Nalagarh cement plant

new grinding unit of Ambuja Cements Ltd (ACL) came into operation in the industrial

town of Nalagarh in Himachal Pradesh. The plant has a manufacturing capacity of 1.5

million units per annum. The construction of the plant started in January last year and

involved an investment of Rs 300 crore.The plant was inaugurated by Chief Minister P

K Dhumal. This is Ambuja’s third cement unit in the hill state and the 12th in the

country. The grinding unit is located near Nalagarh in the Himalayan foothills close to

the Punjab border.

The unit will use the clinker produced at ACL’s Rauri unit some 95 km from the plant.It will use a fully automated production process with the help of German technology.

The Nalagarh unit allows easy access to all important markets of the state and the

neighbouring states of Punjab and Haryana. The cement will be made available in

specially designed 50 kg bags that are tamper-proof and seepage proof.



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Holcim to invest $1 bn in 3 new plants

Swiss cement company Holcim plans to invest $1 billion in setting up 2-3 greenfield

manufacturing plants in the country in the next five years to serve the rising domestic

demand, a senior company executive said. The expansion will take India’s second

largest cement company’s total cement-making capacity to 60 million tonne per annum

from 50 million tonne currently.

All-India Cement Prices rise during the quarter

Cement prices increased across the country during the quarter, with a variety of factors

supporting the price rise. The major factor that caused the price rise was the increase

in the excise duty on cement in the Union Budget and the hike in the prices of fuel,

which led to a hike in the input costs. The Budget increased the Excise duty from 8% to

10% for Cement prices above Rs190 per bag, while increasing the duty from Rs230/

tonne to Rs290/tonne for cement sold at less than Rs190 per bag. The increase in

excise duty on cement is likely to have an impact of Rs3 per bag for cement sold below

Rs190 and a minimum Rs3.75 for cement sold above Rs190. The budget also imposed a

clean energy cess of Rs50 per tonne on imported and domestic coal, thereby pushing

up the input costs further. On account of a short-term demand-supply mismatch,

cement manufacturers have managed to increase their prices by over and above the

rise in input costs. After the Budget, cement companies have increased the prices by

Rs10-12/bag, depending on the region, to pass on the increase in input costs.



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Demand-side factors also contributed to the rise in prices. The prices were up in the

Northern region due to healthy demand from the infrastructure segment and

construction activities related to the Commonwealth Games. The prices rebounded in

the Southern region as well due to the improvement in the political scenario of Andhra

Pradesh and the commencement of government-sponsored infrastructure activities.

Robust demand from infrastructure projects resulted in a price rise in the Eastern and

Central regions as well.

All-India Capacity Utilisation at 84%

All-India capacity utilisation during January-February 2010 remained robust at 84%,

despite the huge capacity additions, mainly due to healthy demand. The Central region

clocked the highest utilisation rate of 114% during the same period. The Northern and

Western regions also clocked healthy utilisation rates of 98% and 89%, respectively.

However, the utlisation rates remained low in the Southern Region at 70% due to

overcapacity and modest demand.

Coal prices surge

Cement manufacturers use coal for power generation and in the kiln for cement

production. Since Power forms a major portion of the overall costs involved in cement

manufacturing, the price of coal (the primary raw material in power generation) has a

major effect on the profitability of cement manufacturers. The coal prices were up by

close to 30% during 4QFY2010.



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The average prices of the New Castle Mccloskey coal stood at around US $95/tonne

during 4QFY2010 (as against US $73/tonne witnessed in 3QFY2010); coal prices were

higher even on a sequential basis. The increase in coal prices is a negative for cement

manufacturers, as it would result in margin erosion.

Major developments during the quarter

Ambuja Cements Capacity Addition:

A new 1.5mtpa grinding unit of Ambuja Cements Ltd (Ambuja) came into operation at

Nalagarh in Himachal Pradesh. The plant has been set up at an investment of Rs300cr.

The Nalagarh unit will use the clinker produced at Rauri unit, which is 95km from the

Nalagarh Plant. It will use a fully-automated production process, with the help of

German technology. This unit allows easy access to all important markets of the state,

and the neighbouring states of Punjab and Haryana. The cement will be made available

in specially designed 50 kg bags that are tamper-proof and seepage proof. With the

addition of this capacity, Ambuja's overall cement capacity has touched 25mtpa. India

Cements

QIP Issue:

India Cements has raised US $65mn via the QIP route, which we believe is primarily

for the redemption of the US $75mn of FCCBs due in May 2011. The conversion price

of the FCCBs is at Rs350, which is far above the company's current market price. Thus,

the FCCBs are unlikely to be converted into equity. Further, a portion of the funds

raised is also expected to be used for capital expenditure plans.



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Margins to show yoy decline in 4QFY2010

We expect the Operating Margins (OPM) of the cement players to decline substantially

on a yoy basis during the quarter, largely due to the increase in the cost of power and

raw materials (such as limestone and gypsum). Freight and forwarding costs, which

form a substantial portion of the overall operating costs, are also set to increase, due to

a hike in fuel costs and increase in lead distance, thereby resulting in margin erosion.

South-based players are expected to witness the highest decline in margins due to the

double whammy of a fall in realisations and increase in the input costs. India Cements

is set to witness the highest decline in the OPM, of 792bp. However, Grasim is expected

to report a 458bp yoy increase in the OPM, on account of robust operating performance

from the company's VSF Business.

Profile of Top Indian Cement Companies:

1. ACC LTD

• ACC’s brand name is synonymous with cement and enjoys a high level of equity in

Indian market. It is the only cement company that figures in the list of Consumer

Super Brands of India.

• ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC'soperations are spread throughout the country with 14 modern cement factories, more

than 30 Ready mix concrete plants, 20 sales offices, and several zonal offices.



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• ACC is going to spend Rs 1,400 crore next year to augment its capacity. Meanwhile, it

believes that more orders may start flowing in from housing and commercial sectors in

near future.

• The Company is planning to increase its annual Cement capacity to 30 million tonnes.

• During the quarter company has acquired a 100% equity stake in Encore Cements &

Additives Private Limited (ECAPL).

Investment Highlights

Results Update (Q1 CY10)

1. ACC Ltd

ACC Ltd reported a marginal decline in consolidated net profit for the quarter ended

March 2010. During the quarter, the profit of the company decline 1.62% to Rs

3928.79 million from Rs 3993.42 million in the same quarter previous year. Net sales

for the quarter rose 3.81% to Rs 22762.44 million, while total income for the quarter

rose 3.81% to Rs 23022.92 million, when compared with the prior year period.

Company posted earnings of Rs 20.90 a share during the quarter, registering 1.66%

decline over prior year period.



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Quarterly Results – Consolidated (Rs in mn)

As at Mar - 10 Mar - 09 %Change

Net Sales 22762.44 21926.50 3.81

Net Profit 3928.79 3993.42 (1.62)

Basic EPS 20.90 21.26 (1.66)

• Modernizations and Expansion

a. Orissa: The Bargarh expansion project was completed in this quarter, thus raising

the plants installed capacity to 2.1 million tonnes per annum.

b. Karnataka: The grinding plants at Thondebhavi and Kudithini are stabilizing.

Company expects the remaining part of their Karnataka expansion project also to be

completed in the second quarter.

c. Maharashtra: Work on the new line of 3 million tonnes per annum of cement at

Chanda together with a 25 MW captive power plant is on track and scheduled for

completion in the third quarter of this year.



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• Sustainable Development Update

a. Wind Energy: Continuing with the aim to promote the use of renewable energy

sources, Company commissioned their third energy farm in March 2010 near Satara

in Maharashtra made up of two turbines of 1.25 MW capacity each. ACC now has

total wind power capacity of 19 MW.

b. Green Buildings: The company’s 70 year old headquarters building, Cement House,

which was recently renovated received the Gold Shield from Indian Green Buildings

Council in the leadership in energy and environmental design under new

construction and major renovation category. The company is implementing three

other unique green projects viz. a sustainable residential township in the new plant

at Kudithin , in Karnataka, the central control room building in the upcoming

Chanda expansion project and hostel accommodation in the training establishment

in the Thane complex.The Cement production and despatch figures for the month of

March 2010 as follows:

Particulars March 09 March 10

Cement Production 1.99 million tonnes 1.94 million tonnes

Cement Despatch 2.01 million tonnes 1.94 million tonnes

Particulars January-Mar 09 January-Mar10

Cement Production 5.60 million tonnes 5.54 million tonnes

Cement Despatch 5.64 million tonnes 5.55 million tonnes



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• Coal Projects

During the year, ACC was successful in getting allotments of coal blocks in Madhya

Pradesh and West Bengal. These include four coal blocks in Madhya Pradesh,

exclusively for ACC, which the company will develop in a joint venture with MP State

Mining Corporation Ltd. Initial exploratory and preparatory work has already

commenced. The company has also been allotted a 14% stake in a coal block In West

Bengal which would be developed along with other co-allottees.

• Investments

In December 2009, the company entered into an agreement with the promoters of

Asian Concrete & Cement Private Limited (Asian Cement) to acquire a 45% equity

stake in that company, Asian Cement has a cement grinding plant of capacity 0.3

million tonnes in the Solan District of Himachal Pradesh and is setting up an

additional 1million tonne grinding facility Alternative Fuels and Raw Materials. Thecompany's AFR business registered a substantial increase in the usage of alternative

fuels and raw materials through the co-processing of industrial waste at all our

plants. The business has also increased its portfolio and has successfully co-

processed 27 different types’ of industrial waste streams at our plants.



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• Acquired stake in Encore Cement

ACC, India`s foremost cement manufacturer has acquired a 100% equity stake in

Encore Cement & Additives. Encore Cement & Additives has a 2 lakh ton capacity

slag grinding unit in Vishakhapatnam. Financial details of the deal were not

disclosed. This acquisition will help the company further strengthen its presence in

coastal Andhra Pradesh. With the said acquisition, Encore has now become a wholly

owned subsidiary of ACC.

• Inaugurates 4th cement plant in Karnataka

ACC has inaugurated its fourth cement plant in the state of Karnataka - `Kudithini

cement works`. Located in Kudithini village which is 25 kilometers from the district

headquarters town of Bellary, this new plant becomes the company`s sixteenth

cement plant in its national network and the fourth in the state of Karnataka. This

new generation fully automated cement grinding plant has an annual capacity to

produce 1.2 million tons of cement of superior quality. The project involved an outlay

of about Rs 3.70 billion.

• Inaugurates Thondebhavi Cement Works in Karnataka

ACC has inaugurated its newest cement plant in Thondebhavi, Karnataka. ACC

Thondebhavi Cement Works was set up as a Greenfield project in the picturesque

Thondebhavi village, in Gauribidanur Tehsil of Chikballapur District, Karnataka.



June 23rd, 2010

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Installed at a cost of about Rs 3.50 billion, this cement grinding plant has a capacity

of 1.60 million tons per annum and will produce fly-ash based Portland pozzolana

cement. The plant will have its own railway siding. Clinker is received by rail from

ACC`s modern cement plants at Wadi in Gulbarga district.

• ACC mops up Rs.300 crore through private placement route

ACC has mopped up Rs 300 crore through the private placement route. The company

has completed the issue of 3,000 secured non-convertible debentures (NCDs) of the

face of Rs 10 lakh each. The bond has a coupon rate of 8.45% payable annually and

is for a period of five years.

• ACC to spend Rs.1400 crore on capacity expansion

ACC is going to spend Rs 1,400 crore next year to augment its capacity.

Meanwhile, it believes that more orders may start flowing in from housing and

commercial sectors in near future.

• ACC allots 1575 shares on exercise of employee stock options

Cement major ACC has allotted 1,575 shares against exercise of Employee Stock

Options under the ESOS 2004 scheme.



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• ACC board recommends final dividend

ACC Ltd has recommended payment of a final dividend at the rate of 130%.

Accordingly, this will translate to Rs. 13/- (Rupees Thirteen only) per equity share of

Rs. 10/- each. Along with the Interim Dividend of Rs. 10/- per share paid earlier, the

total dividend for the year is Rs. 23/- (Rupees Twenty three only) per share.

• ACC in pact with MP government for coal blocks

ACC has signed an agreement with the Madhya Pradesh State Mining Corporation

(MPSMC), a Madhya Pradesh (MP) government run entity. As per the terms of the

agreement, a wholly-owned subsidiary of the company -- ACC Mineral Resources

(AMRL) -- will form a joint venture with MPSMC to explore and mine four coal blocks

at Marki Barka, Bicharpur, Semaria Piparia and Niorga IV blocks, with total reserves

of around 200 million tonne. The coal find from these blocks will be supplied to

ACC’s cement plants at Gagal, Kymore, Tikaria and Lakheri locations.

The move will help the company to stop sourcing coal from e-auctions and open

market and will also lead to improved performance of the company's cement plants

as a direct result of better supply assurance, lower inventory carrying costs and,

above all, consistent and better quality of the product.These mines are expected to

become operational in next 4-5 years.



June 23rd, 2010

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)Value(Rs. in million) CY08A CY09A CY10E CY11E

12m 12m 12m 12m

Description

Net Sales 78886.04 86481.13 93399.62 102739.58

Other Income 1114.38 772.99 811.64 852.22

Total Income 80000.42 87254.12 94211.26 103591.80

Expenditure -60572.81 -60172.80 -65846.73 -73458.80

Operating Profit 19427.61 27081.32 28364.53 30133.00

Interest -399.85 -843.60 -885.78 -930.07

Exceptional Items 425.49 0.00 0.00 0.00

Gross Profit 19453.25 26237.72 27478.75 29202.93

Depreciation -3205.36 -3731.29 -4104.42 -4514.86

Profit before Tax 16247.89 22506.43 23374.33 24688.07

Tax -5251.70 -6867.90 -7246.04 -7653.30

Profit after Tax 10996.19 15638.53 16128.29 17034.77

Minority Interest 0.28 0.58 0.00 0.00

Net Profit 10996.47 15639.11 16128.29 17034.77

Equity Capital 1878.80 1,879.40 1879.40 1879.40

Reserves 46363.70 56819.20 72947.49 89982.26

Face Value 10.00 10.00 10.00 10.00

Total No. of Shares 187.88 187.94 187.94 187.94

EPS 58.53 83.21 85.82 90.64



June 23rd, 2010

30

Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs. in million) 30-Sep-09 31-Dec-09 31-Mar-10 30-Jun-10E

3m 3m 3m 3m

Description

Net Sales 21146.56 21905.92 22762.44 23672.94

Other Income 150.28 296.93 260.48 273.50

Total Income 21296.84 22202.85 23022.92 23946.44

Expenditure -14232.37 -17090.84 -16210.22 -16571.06

Operating Profit 7064.47 5112.01 6812.70 7375.39

Interest -135.52 -412.94 -136.30 -143.12

Exceptional Items 0.00 0.00 0.00 0.00

Gross Profit 6928.95 4699.07 6676.40 7232.27

Depreciation -876.46 -1121.49 -1030.75 -1051.37

Profit before Tax 6052.49 3577.58 5645.65 6180.91

Tax -1898.31 -956.84 -1716.71 -1854.27

Profit after Tax 4154.18 2620.74 3928.94 4326.63

Minority Interest 0.92 0.00 -0.15 0.00

Net Profit 4155.10 2620.74 3928.79 4326.63

Equity Capital 1,879.09 1,879.40 1,879.41 1,879.41

Face Value 10.00 10.00 10.00 10.00

Total No. of Shares 187.91 187.94 187.94 187.94

EPS 22.11 13.94 20.90 23.02



June 23rd, 2010

31

Key Ratios

Particulars CY08 CY09 CY10E CY11E

EPS (Rs.) 58.53 83.21 85.82 90.64

EBITDA Margin (%) 24.63% 31.31% 30.37% 29.33%

PAT Margin (%) 13.94% 18.08% 17.27% 16.58%

P/E Ratio (x) 15.51 10.91 9.4 8.9

ROE (%) 22.79% 26.64% 21.55% 18.54%

ROCE (%) 30.57% 36.48% 30.18% 26.22%

EV/EBITDA (x) 8.78 6.30 6.02 5.66

Debt-Equity Ratio 0.10 0.09 0.07 0.06

Book Value (Rs.) 256.77 312.33 398.14 488.78

P/BV 3.54 2.91 2.04 1.66

Outlook and Conclusion

• Net sales and PAT of the company are expected to grow at a CAGR of 9% and 16% over

2008 to 2011E respectively.

• At the current market price of Rs.908.00, the stock trades at a P/E of 9.4x and 8.9x

for CY10E and CY11E respectively.

• On the basis of EV/EBDITA, the stock trades at 6.02x and 5.66x for CY10E and

CY11E respectively.



June 23rd, 2010

32

• Price to Book Value of the stock is expected to be at 2.04 and 1.66 respectively for

CY10E and CY11E.

• ACC Mineral Resources (AMRL), a wholly owned subsidiary of the company has inked

a pact with Madhya Pradesh State Mining Corporation (MPSMC).

• ACC has acquired a 100% equity stake in Encore Cement & Additives. Encore Cement

& Additives has a 2 lakh ton capacity slag grinding unit in Vishakhapatnam. This

acquisition will help the company further strengthen its presence in coastal Andhra

Pradesh.

• ACC has inaugurated its fourth cement plant in the state of Karnataka - `Kudithini

cement works`. This new generation fully automated cement grinding plant has an

annual capacity to produce 1.2 million tons of cement of superior quality. The project

involved an outlay of about Rs 3.70 billion.

• ACC is going to spend Rs 1,400 crore next year to augment its capacity. Meanwhile, it

believes that more orders may start flowing in from housing and commercial sectors in

near future.

• The Ministry of Coal allocated a coal block in the state of West Bengal to a consortium

in which the Company is a member. The Company plans to carry out mining activities

through a joint venture company to be formed.

• The company could expand its margins due to improved operating efficiencies. ACC

benefited from lower coal prices and fuel costs. We recommend ‘ BUY’ in this particular

scrip with a target price of Rs.950.00 for Medium to Long Term Gains.



June 23rd, 2010

33

2. India Cements Ltd

Rating: HOLD

• The India Cements Limited is the largest producer of cement in South India.

• The Company's plants are well spread with three in Tamilnadu and four in Andhra

Pradesh which cater to all major markets in South India and Maharashtra.

• The Company is the market leader with a market share of 28% in the South. It aims

to achieve a 35% market share in the near future. The Company has access to huge

limestone resources and plans to expand capacity by de-bottlenecking and

optimization of existing plants as well as by acquisitions.

• The Company has well established brands- Sankar Super Power, Coromandel Super

Power and Raasi Super Power.

• The topline of the company are expected to grow at a CAGR of 5% over 2009A to

2012E.

Investment Highlights

• FY10 Performance

Net profit of the company decreased at 18% yoy Rs.3543.40mn from Rs.4321.80mn

of same period of last year. Total revenue for the year stood at Rs.38054.50 mn from

Rs.39515.60 which is 3.7% decrease than that of a year ago. EPS for the year stood

at Rs.11.54 per equity share of Rs.10.00 each.



June 23rd, 2010

34

Operating profit of the company stood at Rs.9070.80mn. OPM for the year stood at24%. Expenditure of the company decrease 3% YoY to Rs.29011.80 mn. Interest

expenses for the year stood at Rs.1426.40mn.

Results Updates (Q4 FY10)

The bottomline of the company for the quarter decrease at 59% yoy that is

Rs.383.20mn from Rs.938.60mn of same period of last year. Total revenue for the

fourth quarter stood at Rs.9743.00 mn from Rs.9905.60 which is 2% decrease than

that of a year ago.EPS for the quarter stood at Rs.1.25 per equity share of Rs.10.00

each.



June 23rd, 2010

35

Expenditure of the company increase 7.3% YoY to Rs.8260.90mn from

Rs.7696.50mn of same period of last year. Interest expenses for the quarter stood

at Rs.368.7mn. OPM & NPM for the quarter stood at 16% and 4% respectively.

Quarterly Results - standalone (Rs in mn)

As At Mar-10 Mar-09

Net sales 9743.0 9905.6

PAT 383.20 938.60

Basic EPS 1.25 3.32

EquityCapital

3071.70 2824.40

The Indian Cement Industry[1][1]

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