3QCY2012 Result Update | Cement

October 19, 2012

ACC
Performance Highlights
Quarterly results (Standalone)
Y/E Dec. (` cr) Net sales Operating profit OPM (%) Rep Net profit
Source: Company, Angel Research

NEUTRAL
CMP Target Price
Investment Period
2QCY2012 % chg qoq 2,778 688 24.8 418 (12.0) (32.5) (578)bp (40.5) 3QCY2011 2,150 319 14.8 168 % chg yoy 13.7 45.5 415bp 48.4

`1,408 -

3QCY2012 2,445 464 19.0 249

Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Cement 26,438 (1,997) 0.8 1515/1083 45,981 10 18,682 5,684 ACC.BO ACC@IN

ACCs 3QCY2012 net profit rose by a strong 48.4% yoy to `249cr, beating our estimate of a 37% yoy growth. The companys strong performance was on account of a 19.8% yoy growth in its realizations. However, volume degrowth of 5.1% yoy for the quarter is a disappointment. For 9MFY2012 the companys volume growth has been marginal at 2.2%. OPM up 415bp yoy at 19.0%: ACCs standalone top-line rose by 13.7% yoy to `2,445cr, aided by a strong 19.8% yoy growth in realization to `4,431/tonne. However, dispatches were down 5.1% yoy as the company was affected by a muted demand scenario in south India. The strong improvement in realization resulted in a 415bp yoy expansion in OPM despite the increase in operating costs. The companys per tonne operating cost was higher by 9.7% on a yoy basis. Freight and power & fuel costs were higher by 8.8% and 8.1% yoy respectively. Outlook and valuation: We expect ACC to register a 13.9% yoy growth in its top-line over CY2011-13E. The bottom-line is expected to post a CAGR of 8.5%. At the current levels, the stock is trading at an EV/tonne of US$130 on CY2013E capacity, which we believe is fair. Hence, we continue to remain our Neutral recommendation on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 10.6 20.0 19.1

Abs. (%) Sensex ACC

3m 8.1 11.5

1yr 9.3 25.0

3yr 7.8 77.5

Key financials (Standalone)

Y/E Dec. (` cr) Net sales % chg Adj. Net profit % chg OPM (%) FDEPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/tonne (US$)* Installed capacity (mtpa) EV/EBITDA (x) CY2010 7,717 (3.9) 1,120 (30.3) 23.5 59.6 23.6 4.1 17.9 19.9 3.0 178 27 12.7 CY2011 9,439 22.3 1,325 18.3 20.3 70.5 20.0 3.7 19.4 18.6 2.5 152 30 12.4 CY2012E 10,923 15.7 1,492 12.6 21.5 79.4 17.7 3.4 20.0 21.6 2.1 135 30 9.8 CY2013E 12,253 12.2 1,561 4.6 21.4 83.1 17.0 3.1 19.2 22.8 1.8 130 30 8.4

V Srinivasan
022-39357800 Ext 6831 v.srinivasan@angelbroking.com

Source: Company, Angel Research ;Note: *adjusted for CPP

Please refer to important disclosures at the end of this report

ACC | 3QCY2012 Result Update

Exhibit 1: 3QCY2012 performance (Standalone)

Y/E Dec. (` cr) Net Revenues Other Operating Income Total Operating Income Net Raw-Material Cost (% of Sales) Power & Fuel (% of Sales) Staff Costs (% of Sales) Freight & Forwarding (% of Sales) Other Expenses (% of Sales) Total Expenditure Operating Profit OPM (%) Interest Depreciation Other Income PBT (ecl. Extr. items) Extr. Income/(Expense) PBT (incl. Extr. Items) Provision for Taxation (% of PBT) Reported PAT PATM (%) Source: Company, Angel Research 3QCY12 2,445 29 2,474 306 12.5 567 23.2 141 5.7 488 20.0 509 20.8 2,010 464 19.0 26 135 55 358 358 109 30.6 249 10.2 2QCY12 2,778 38 2,815 302 10.9 604 21.7 136 4.9 574 20.7 512 18.4 2,127 688 24.8 30 136 78 601 601 183 30.4 418 15.0 (40.5) (487)bp (40.4) (40.2) (5.5) (32.5) (578)bp (14) (0.3) (30.1) (40.4) (0.6) (15.1) 3.6 (6.2) % chg qoq (12.0) (21.8) (12.1) 1.5 3QCY11 2,150 99 2,249 288 13.4 552 25.7 141 6.6 472 22.0 477 22.2 1,930 319 14.8 25 120 57 231.2 231 64 27.5 168 7.8 48.4 238bp 54.9 71.9 4.1 45.5 416bp 1.5 12.7 (4.8) 54.9 6.7 3.3 (0.3) 2.6 % chg yoy 13.7 (70.2) 10.0 6.5 9MCY12 8,083 96 8,178 990 12.2 1,847 22.8 408 5.1 1,636 20.2 1,499 18.5 6,381 1,798 22.2 87 401 199 1,508 (335.3) 1,172 350 29.9 822 10.2 9MCY11 6,936 169 7,105 852 12.3 1,600 23.1 376 5.4 1,408 20.3 1,392 20.1 5,626 1,479 21.3 78 348 146 1,199 1,199 344 28.7 855 12.3 (3.8) (215)bp (2.2) 1.8 13.4 21.6 92bp 12.4 15.3 36.0 25.7 7.7 16.3 8.7 15.5 % chg yoy 16.5 (43.4) 15.1 16.2

Exhibit 2: Financial performance

3,500 3,000 2,500 (` cr) 2,000 1,500 1,000 500 0 2QCY11 3QCY11 Net Sales 4QCY11 1QCY12 Reported PAT 2QCY12 3QCY12 OPM (RHS) 337 470 168 155 418 249 2,403 2,503 2,150 2,860 2,778 2,445 26 24 22 20 18 16 14 12 10 (%)

Source: Company, Angel Research

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ACC | 3QCY2012 Result Update

Exhibit 3: 3QCY2012 Actual vs Angel estimates

(` cr) Net sales Operating profit OPM (%) Net profit
Source: Company, Angel Research

Actual 2,445 464 19.0 249

Estimates 2,401 463 19.3 230

Variation (%) 1.8 0.3 (28)bp 8.1

Performance highlights
Robust top-line growth, led by better realization
ACC reported a strong top-line performance during 3QCY2012 primarily on account of improved realization as volume declined by 5.1% on a yoy basis. During the quarter, ACCs realization rose strongly by 17.3% yoy to `4,431/tonne.

Higher realization leads to OPM expansion

A robust yoy improvement in ACCs realization pushed up its OPM by 416bp on a yoy basis despite a 9.7% yoy increase in operating costs. Even on a qoq basis the realsation was down only by 1.4% as delayed monsoon resulted in prices remaining healthy in this seasonally weak quarter. Cement prices in fact rose in the month of July before witnessing a decline in the month of August and September.

Per tonne analysis

During 3QCY2012, ACCs realization/tonne improved by 19.8% yoy to `4,527. Power & fuel cost/tonne rose by 8.1% yoy to `1,049. Even, on a qoq basis, the power & fuel cost/tonne rose by 5.1%. The freight cost/tonne increased by 8.8% to `903. The operating profit/tonne stood at `806, up 107.9% yoy.

Exhibit 4: Operational performance

Parameter (`) Realization/tonne Net Raw-material cost /tonne Power and fuel cost /tonne Freight cost/tonne Other expenses/ tonne Operating profit/tonne
Source: Company, Angel Research

3QCY12 2QCY12 3QCY11 yoy chg (%) qoq chg (%) 4,527 661 1049 903 942 806 4,591 638 998 949 846 1076 3,779 735 971 830 838 387 19.8 (10.0) 8.1 8.8 12.4 107.9 (1.4) 3.6 5.1 (4.9) 11.4 (25.1)

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ACC | 3QCY2012 Result Update

Investment rationale
Favorable capacity location to augur well for ACC
Around 51% of ACC's total capacity is located in states where either cement supply is less than cement demand or, if it is more, excess can economically be supplied to nearby supply-deficit states. Hence, all such capacities can rationally achieve higher capacity utilization. Even its entire south India plant capacity is in Karnataka and Tamil Nadu, where the demand-supply dynamics are far better than that in Andhra Pradesh.

Growth to be driven by capacity addition

Post the expansion of the Wadi plant and the commissioning of the 3mtpa Chanda plant, ACC's total capacity currently stands at 30mtpa. These capacity additions are expected to drive its growth going ahead, as was reflected by the 11.5% yoy increase in the dispatches during CY2011.

Higher fuel availability for CPPs leading to lower power and fuel costs
Going ahead, we expect the power and fuel cost to be lower for the company, as it currently has 85% self sufficiency in its power requirement with a 361MW captive power plant (CPP) and access to the highest coal linkage in the industry along with few captive coal blocks.

Outlook and valuation

We expect ACC to register a 13.9% yoy growth in its top-line over CY2011-13E. The bottom-line is expected to post a CAGR of 8.5%. At the current levels, the stock is trading at an EV/tonne of US$130 on CY2013E capacity, which we believe is fair. Hence, we continue to remain Neutral on the stock.

Exhibit 5: Key assumptions

Earlier estimates CY12E Installed capacity (mtpa) Realization/tonne (`) Power cost/tonne (`) EBITDA/tonne (`)
Source: Company, Angel Research

Revised estimates CY12E 30 4,449 994 966 CY13E 30 4,649 1,018 1,001 30

CY13E 4,598 986 995

30 4,400 958 957

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ACC | 3QCY2012 Result Update

Exhibit 6: Change in estimates

Parameter (` cr) Net sales Op. expenses Op. profit Depreciation Interest PBT Tax PAT
Source: Angel Research

CY12E Earlier
10,802 8,631 2,332 529 92 1,541 432 1,445

CY13E Var. (%)

1.1 1.2 0.9 7.2 14.9 3.3

Revised
10,923 8,731 2,353 529 92 1,653 496 1,492

Earlier
12,256 9,782 2,635 543 86 2,208 662 1,546

Revised
12,253 9,794 2,621 543 86 2,230 669 1,561

Var. (%)
(0.0) 0.1 (0.5) 1.0 1.0 1.0

Exhibit 7: One-year forward EV/tonne

300,000 250,000 EV (` mn) 200,000 150,000 100,000 50,000 0 Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

EV/tonne Source: BSE, Company, Angel Research;

$100

$120

$140

$160

Exhibit 8: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements# UltraTech Cements Reco Neutral Neutral Neutral Neutral Neutral Neutral Neutral CMP (`) Tgt. Price (`) Upside (%) FY2014E P/BV (x) FY2014E P/E (x) FY2012-14E EPS CAGR FY2014E RoE (%) EV/tonne^ US $

1,408 206 98 116 187 4,206 2,010

3.1 3.5 0.8 0.9 1.6 3.5 3.2

17.0 16.0 8.0 6.5 10.3 16.1 18.2

8.5 25.7 12.8 41.7 6.2 20.0 11.3

19.2 21.1 10.2 14.6 17.0 23.6 18.7

136 184 63 50 65 138 209

Source: Company, Angel Research; Note: *Y/E December; ^ Computed on TTM basis;#Y/E June

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ACC | 3QCY2012 Result Update

Company Background
In 2005, ACC was acquired by the world's second largest cement company, Holcim. Currently, the Holcim Group in India (ACC and Ambuja Cements taken together) has the largest cement capacity in the country (57mtpa). ACC has a standalone total capacity of 30mtpa, with 16 cement plants spread across the country. Similar to UltraTech, the company is also a pan-India player but with a southern inclination (36% of its total capacity is in south as against 22% in north, 22% in east and northeast, 17% in central and 4% in west).

Profit & loss statement (Standalone)

Y/E Dec. (` cr) Total Operating Income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) Adjusted PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY08 7,283 3.9 5,550 886 1,599 416 2,648 1,733 (9.6) 23.8 294 1,439 (10.8) 19.8 40 338 18.9 1,737 1.1 (49) 1,785 524 29.3 1,213 (1.0) 16.7 64.6 64.6 (1.1) CY09 8,191 12.5 5,547 956 1,540 368 2,684 2,644 52.6 32.9 342 2,302 60.0 28.7 84 77 3.3 2,294 32.1 2,294 688 30.0 1,607 32.5 20.0 85.5 85.5 32.4 CY10 7,976 (2.6) 6,163 1,168 1,599 462 2,935 1,812 (31.5) 23.5 393 1,420 (38.3) 18.4 57 98 6.7 1,461 (36.3) 1,461 341 23.4 1,120 (30.3) 14.5 59.6 59.6 (30.3) CY11 9,660 21.1 7,740 1,503 2,183 526 3,527 1,921 6.0 20.3 475 1,445 1.8 15.3 97 192 12.5 1,540 5.4 1,540 215 14.0 1,325 18.3 14.0 70.5 70.5 18.3 CY12E 11,085 14.7 8,731 1,450 2,422 560 4,300 2,353 22.5 21.5 529 1,824 26.2 16.7 92 256 15.5 1,988 29.1 335 1,653 496 30.0 1,492 12.6 13.7 79.4 79.4 12.6 CY13E 12,415 12.0 9,794 1,639 2,664 616 4,875 2,621 11.4 21.4 543 2,078 13.9 17.0 86 238 10.7 2,230 12.2 2,230 669 30.0 1,561 4.6 12.7 83.1 83.1 4.6

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ACC | 3QCY2012 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 5,836 2,366 3,470 1,603 679 2,760 984 651 1,124 2,766 (6) 5,746 6,826 2,668 4,158 2,156 1,476 2,256 708 554 994 3,114 (858) 6,932 8,077 2,995 5,082 1,563 1,703 2,753 980 624 1,149 3,746 (993) 7,355 9,645 3,438 6,208 435 1,625 3,618 1,653 590 1,375 3,664 (46) 8,221 9,901 3,967 5,933 855 2,455 3,317 1,079 624 1,614 3,863 (546) 8,698 10,156 4,510 5,646 1,590 2,555 3,788 1,353 683 1,752 4,063 (275) 9,516 188 4,740 4,928 482 336 5,746 188 5,828 6,016 567 349 6,932 188 6,282 6,469 524 362 7,355 188 7,004 7,192 511 518 8,221 188 7,506 7,694 486 518 8,698 188 8,349 8,537 461 518 9,516 CY08 CY09 CY10 CY11 CY12E CY13E

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ACC | 3QCY2012 Result Update

Cash flow statement (Standalone)

Y/E Dec. (` cr) Profit before tax Depreciation Interest expense Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc)/ Decl Fixed Assets (Inc)/ Dec in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY08 1,785 294 40 309 338 564 1,527 (1,325) 166 338 (822) 2 13 439 40 (464) 241 743 984 CY09 342 84 575 77 727 (1,544) (797) 77 (2,264) 85 505 84 (505) (276) 984 708 CY10 393 57 407 98 395 (657) (227) 98 (786) (43) 667 57 (767) 272 708 CY11 475 97 (142) 192 215 (441) 78 192 (171) (13) 609 97 (719) 672 980 CY12E CY13E 1,653 529 92 (74) 256 496 1,448 (675) (830) 256 (1,249) (25) 655 92 (773) (573) 1,653 1,079 2,230 543 86 3 238 669 1,955 (990) (100) 238 (852) (25) 718 86 (829) 274 1,079 1,353 2,294 1,461 1,540

2,492 1,825 1,563

980 1,653

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ACC | 3QCY2012 Result Update

Key ratios
Y/E Dec. Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) (0.2) (0.7) 36.0 (0.2) (0.5) 27.3 (0.3) (1.0) 25.0 (0.3) (1.2) 14.9 (0.3) (1.1) 19.8 (0.4) (1.1) 24.1 1.3 38 15 159 (40) 1.3 35 11 193 (57) 1.1 39 9 203 (81) 1.1 38 8 175 (69) 1.1 39 9 157 (55) 1.2 39.6 9.4 147.7 (47.8) 26.9 55.4 26.7 36.3 90.8 29.4 19.9 49.8 17.9 18.6 37.9 19.4 21.6 41.4 20.0 22.8 49.9 19.2 19.8 70.7 2.0 27.3 28.1 70.0 1.8 35.1 17.8 76.6 1.6 21.4 15.0 86.0 1.8 23.8 16.5 70.0 2.0 23.2 16.7 70.0 2.1 25.0 64.6 64.6 82.8 20.0 262.3 85.5 85.5 103.7 23.0 320.1 59.6 59.6 80.5 30.5 344.2 70.5 70.5 95.8 28.0 382.7 79.4 79.4 89.7 30.1 409.3 83.1 83.1 112.0 32.9 454.2 21.8 17.0 5.4 1.4 3.3 13.9 4.2 16.5 13.6 4.4 1.6 2.9 8.7 3.3 23.6 17.5 4.1 2.2 3.0 12.7 3.1 20.0 14.7 3.7 2.0 2.5 12.4 2.9 17.7 15.7 3.4 2.1 2.1 9.8 2.7 17.0 12.6 3.1 2.3 1.8 8.4 2.3 CY08 CY09 CY10 CY11 CY12E CY13E

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ACC | 3QCY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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

ACC No No No No

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

Ratings (Returns):

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

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

Neutral (-5 to 5%)

October 19, 2012

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