RESEARCH REPORT SYNOPSIS Cement Sector mainly depends upon the input cost of Raw Materials, power generating

g capacity and the demand and the supply. During the current year, cement industry's performance has been adversely affected on account of substantial drop in cement prices & rising input costs. Currently, Binani Cement enjoys a PE of 6.37 against an industry average of 14. Binani still being a small player in the Indian market as compared to its peers has a long way to go before it can establish itself as a major player in the Indian Market. The EV/Ebitda for the current year is 6.7x which is way lower than some of the big players like ACC cements which has EV/Ebitda of 10.27x and Ambuja Cements which has EV/Ebitda of 10.38x. The Cement industry will likely see the demand grow by 9-10% boosted by government initiatives in rural development, infrastructure and housing. However, the margins will be low due to stiff price competition in the industry. The operating expenses of the company will increase due to the rising input costs which will further pull down the profit margin of the company. The company has also issued a Post Offer Public Announcement (POPA) to delist its fully paid-up equity shares in accordance with provisions of Delisting Regulations (Delisting offer / Offer). The promoter has accepted a discovered price (i.e. the price at which maximum number of equity shares were tendered by the Public Shareholders) of Rs. 90/per share (Exit Price) and shall accept all the bids tendered at or below the Exit Price and the equity shareholders of the Company who have validly tendered their equity shares at or below the Exit Price will be paid the consideration of Rs. 90/- per equity share.

BUY BSE code : 532849 NSE code : BINANICEM CMP : Rs. 88.70 Target : Rs. 96.40 Date : 29th April, 2011 Market Cap : Rs. 1,672.88 Crores

1year comparative chart

Page 1 Rinkesh Shah PG10072

Industry Overview Cement is one of the core industries which plays a vital role in the growth and expansion of a nation. It is basically a mixture of compounds, consisting mainly of silicates and aluminates of calcium, formed out of calcium oxide, silica, aluminum oxide and iron oxide. The demand for cement depends primarily on the pace of activities in the business, financial, real estate and infrastructure sectors of the economy. Cement is considered preferred building material and is used worldwide for all construction works such as housing and industrial construction, as well as for creation of infrastructures like ports, roads, power plants, etc. Indian cement industry is globally competitive because the industry has witnessed healthy trends such as cost control and continuous technology up gradation. Cement companies try to focus on increasing the capacity of both, the cement as well as the power generating capacity. They have to keep pace with the demand growth. Therefore we see companies increase their production capacity every 2-3 years citing the rise in demand. In any given year there might be a surplus in the production of Cement thereby forcing the companies to reduce the production in the subsequent years. Companies also have to bear the fluctuating input costs i.e. cost of raw materials which affect their profit margins. Besides that there are other costs such as transportation and storage costs which the companies incur. Due to stiff competition amongst the many players in this industry regarding the price or the production the margins for the cement producing companies have also been on the lower side.

RESEARCH REPORT Scope of the Sector India is the second-largest cement producer in the world, with an installed capacity of about 236 million tonnes (MT) in 20092010. The sector is expected to add an additional capacity of 92.3 MT by 2013. As a result, the industry will have a total installed capacity of 383.5 MT by March 2013. During January 2011, the cement production touched 14.52 MT, while the cement despatches quantity was 14.47 MT during the month. The total cement production for April-January 201011 reached 136.51 MT as compared to 130.85 MT over the corresponding period last fiscal. Further, cement dispatches also witnessed an upsurge from 130.09 MT during April-January 2009-10 to 135.56 MT during April-January 2010-11. According to latest research report Indian Cement Industry Forecast to 2012, produced by RNCOS, cement production in India has grown at a brisk pace during the last few years. Despite recession, Indian cement industry performed incredibly well amid recent boom in the infrastructure and housing markets. In view of the upcoming massive infrastructure projects, manufacturers are aggressively increasing their production capacities and the study foresees a 10.5 per cent CAGR growth in cement production during FY 2010-FY 2014. According to a press release, the push in cement demand during the last fiscal was attributed to revival of infrastructure and real estate projects, especially in rural areas. New Investments Cement and gypsum products have received cumulative foreign direct investment (FDI) of US$ 2,315.58 million between April 2000 and January 2011, according to the Department of Industrial Policy and Promotion (DIPP). Page 2

Rinkesh Shah PG10072

 BK Birla Group outfit, Kesoram Industries, is

setting up a 2,000-tonne a day packaging unit in Medak district of Andhra Pradesh at a cost of Rs 8 crore (US$ 1.76 million), according to a filing by the company to the stock exchanges. The proposed unit would cater to the packing needs of its cement manufacturing unit at Sedam in Karnataka.
Birla Corporation, Flagship Company of the M.

P. Birla Group, is planning to set up a 1 MT cement plant in Assam at an investment of around Rs.450 crore (US$ 99 million). The company has signed a memorandum of understanding (MoU) with the Assam Mineral Development Corporation to this effect.
Madras Cements Ltd is planning to invest US$

RESEARCH REPORT Swiss cement company Holcim plans to invest US$ 1 billion in setting up 2-3 greenfield manufacturing plants in the country in the next five years to serve the rising domestic demand. Holcim is present in the country through ACC and Ambuja Cements and holds around 46 per cent stake in each company. While ACC operates 16 cement plants, Ambuja Cements controls five plants in India. The Aditya Birla group is the largest cement-making group by capacity in the country and controls Grasim Industries and Ultratech Cement. Government Initiatives The cement industry is pushing for increased use of cement in highway and road construction. The Ministry of Road Transport and Highways has planned to invest US$ 354 billion in road infrastructure by 2012. Housing, infrastructure projects and the nascent trend of concrete roads would continue to accelerate the consumption of cement. Increased infrastructure spending has been a key focus area. Finance Minister Pranab Mujherjee has proposed to earmark US$ 47 billion for infrastructure development during fiscal 201112. The infrastructure sector has received an impetus in the form of increased funds and tax related incentives offered to attract investors for tapping the infrastructure opportunities around the country. Introduction of tax free bonds, creation of infrastructure debt funds, formulating a comprehensive policy for developing public private partnership projects are some announcements which will give a fillip to the infrastructure sector which is the backbone of any economy

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.
My Home Industries Limited (MHI), a 50:50

joint venture (JV) 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 5 million tonne per annum (mtpa) to 15 mtpa by 2016. The company would undertake this capacity expansion at a cost of US$ 1 billion.
To cater to the growing demands, Everest

Industries is planning to set up a new manufacturing facility in East India. The company is looking at acquiring about 22 acres for the facility that will start with the production of roofing materials and other products will be rolled out in a phased manner. Besides, the company is likely to consider setting up a new factory for the fibre cement boards as it is at present utilising almost 100 per cent of its 90,000 tonne of installed capacity across different plants.

Page 3 Rinkesh Shah PG10072

Company Profile Binani Cement Limited is the flagship subsidiary of Binani Industries Limited (BIL), representing the Braj Binani Group. The cement business started operations in 1997, in Sirohi District, Rajasthan with a 1.65 MTPA integrated cement facility and a 25 MW captive power plant with technological support from F. L. Smidth, Denmark and Larsen & Toubro Ltd. In 2008, a split-grinding unit at Neem Ka Thana was commissioned, boosting the capacity in India to 6.25 MTPA. The Company's product portfolio includes Ordinary Portland Cement, Pozzolona Portland Cement and Ground Granulated Blast furnace Slag (GGBFS). As far as market share is concerned Binani cement is way behind some of the Indian leaders ACC Cements, Ambuja Cements and Ultratech Cements. It still has to do a lot of catch up when it comes to competing with the top players in the industry. The company is looking to diversify its cement portfolio by adding new products to its portfolio. The growth rate of the company has been rather fluctuating with the growth rate falling to 24% in 2009-10. This is mainly due to the reasons that have been mentioned earlier in the report. Year Sales % Growth 2007-08 97,868 44 2008-09 148,979 52 2009-10 185,105 24

RESEARCH REPORT Projected Growth

Year 2010E 2011E 2012E 2013E 2014E

Estimated sales %Growth

212,195 14.64%

244,762 15.35%

282,344 15.35%

325,714 15.35%

375,767 15.35%

Net Sales
400,000 300,000 200,000 100,000 0 2011E 2012E 2013E 2014E 2015E

Net Sales

Although being a small player in the industry, Binani constantly focuses on growth. Binani Cement has established itself as one of the top companies in the industry in terms of efficiency and performance. What truly sets Binani Cement apart is its clear focus on the core attributes of quality, strength and reliability of the end product. These have paid rich dividends and seen brand Binani growing in prominence and stature, poised to capture increasing market share globally. Developments in the domestic environment and a large number of infrastructure projects have created an unforeseen demand for cement consumption in India, which is bound to increase manifold over the coming years. While concrete steps are being taken to bring down, costs, the cement industry is heading towards a very bright future in India.

In the coming years, the cement industry will see a rise in the demand as government is planning to spend massively on the rural and urban infrastructure and other housing projects. This is likely to push the demand for cement. On the other hand cement prices are also likely to go up due to high input costs. This will boost the cement industry in the coming few years.

Page 4 Rinkesh Shah PG10072

RESEARCH REPORT Future Plans Growth in domestic cement demand is expected to remain strong, given the revival in the housing sector, continued Government spending on the rural infrastructure and gradual increase in the number of infrastructure projects being executed by the private sector. The trend in demand growth seen during the last five years is expected to continue over the medium term. Further, with Government targeting 810% GDP growth rate, cement demand should grow at 9-10% over the next few years. The key drivers of Cement Industry in India are
Buoyant real estate market in non metro cities. Increase in infrastructure spending on power,

Expenses The increasing expenses that the company incurs have directly resulted into an inflated bottom line. The expenses include manufacturing expenses, payment to employees, selling and administrative expenses, interests and depreciation and amortization. The total expenses for the fiscal year 2009-10 were 78% of Net Sales which is a huge figure. The expenses figure will increase due to increase in wages and salaries of employees, high input costs and other expenses that the company incurs. However, the growth in volumes of production and increase in efficiency will keep a check on the expenses. EBIDTA margin The Ebitda margin for the year 2009-10 was 31%. The company enjoyed a pretty high margin on account of high demand for cement and large volumes being sold. Also the company has debt in its books which directly results into interest payment obligations. The company is looking for expansion and for that it might require more debt. But the foreseeing a good demand for cement in the India, the Ebidta margin is more or less likely to remain the same.
Year 2010E 2011E 2012E 2013E 2014E

road, port and urban infrastructure. Increase in rural demand driven by National Rural Employment Guarantee Scheme (NREGS). Low-cost housing in urban and rural areas under schemes like Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and Indira Aawas Yojana Favourable interest rates and tax benefits on housing. Domestic Industrial growth and major expansion plans announced across different segments. Keeping all these growth prospects in mind the company proposes to set up a 2.5 million tonnes per annum capacity cement plant in Sutrapada in Junagadh district in Gujarat. The company has also been allocated a lignite block in Nagaur district in Rajasthan, lignite being a raw material in captive power generation. The site for the 120 MW power plant has been finalized and the project is expected to get complete in June 2011.

Ebidta %Growth

64882 12%

75099 16%

86868 16%

100430 16%

112175 11%

As we see the Ebidta margin is growing. But in 2014E the growth in Ebidta margin drops sharply. This may be due to rising competition and increasing expenses.

Page 5 Rinkesh Shah PG10072

Profit after Tax The Profit after Tax of the company for the year 2009-10 is 15%. The PAT has dropped significantly due to interest obligations on the debt that it has in its books and also due to depreciation. In 2009-10 the companys PAT saw a phenomenal growth of 163%.This was mainly attributed to the recession phase getting over and demand of cement going up and also backed up by government reforms. In the subsequent years PAT is likely to go down on rising input costs, rising cost of production, increase in expenses and interest obligations and depreciation. In midst of all these the company may not increase the prices in that proportion which is clearly seen in the PAT forecast.

RESEARCH REPORT Earnings Per Share (EPS) The EPS for the year 2009-10 has been 13.88 which is much lower than Ultratech cements which has EPS of 52 and ACC cements which has EPS of 59. The EPS is likely to go up as PAT increases in the subsequent year which is mainly attributed to increase in sales volume and high capacity utilization and better efficiency.

Earnings per share

40 30 20 10 0 2011E 2012E 2013E 2014E 2015E Earnings per share

% increase in PAT
25% 20% 15% 10% 5% 0%

The book value per share is 33.24 is will increase in the subsequent years as the profit increases and will create a better book value for the investors in the next five years.

% increase in PAT

Page 6 Rinkesh Shah PG10072

RESEARCH REPORT Financials

Particul ars Rs in Lacs Net Sales Other Income Total Income Expend iture Operati ng Profit Interest 2008-09 2009-10 2011E 2012E

Balance Sheet
Balance Sheet Sources Of Funds Share Capital Reserves and Surplus Total Loan Funds 2008-09 2009-10 2011E 2012E

12m

12m

12m

12m

20310.38 27330.41 47640.79

20310.38 47205.37 67515.75

20310.38 81606.72 101917.1

20310.38 121047.7 141358.1

148,979

185,105

212,195

244,762

1,291

2,111

2,216

2,327

150,270

187,216

214,411

247,089

Secured Loans Unsecured Loans Total Deferred Tax Liability Trade Deposits Total Fixed Assets

74019.6 3813.54 77833.14 15542 2476.08 143492

92295.59 6013.54 98309.13 18677 2871.09 187373 91522.9 18677 2871.09 214988.1 84193.77 18677 2871.09 247099.9

119,630

128,037

148,942

171,356

30,640

59,178

65,469

75,732

Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Total Investments

158868.1 47118.85 111749.2 20230.14 131979.4 21129.87

180051 55282.38 124768.6 10000.86 134769.5 37457.2

180051 64284.55 115766.5 0 115766.5 37457

253053.6 76937.23 176116.3 0 176116.3 37457

7,152

7,851

7,322

6,736

Gross Profit Depreci ation Profit before Tax Net Profit Equity Capital Reserve s EPS

23,487

51,327

58,147

68,997

8,031

9,166

9,003

12,653

Current assets, loans and advances Inventories Cash and Bank Balance Loans and Advances Total Current Liabilities and provisions Current Liabilities Provisions Total

21253.95 8721.46 18479.31 48454.72

16998.15 30943.59 24193.4 72135.14

17152.9 89967.55 24193.4 131313.9

19767.13 67709.99 24193.4 111670.5

15,456

42,161

49,145

56,344

10,867

28,192

34,401

39,441

20,310

20,310

20,310

20,310

51091.78 6980.17 58071.95 -9617.23 143492

43832.71 13156.13 56988.84 15146.3 187373

56393.1 13156.13 69549.23 61764.62 214988.1

64987.81 13156.13 78143.94 33526.57 247099.9

27,330

47,205

81,607

121,048

13.88

16.93

19.41

Net Current Assets Total

Page 7 Rinkesh Shah PG10072

Break up of Expenditure
Deprecia tion and Amortisa tion 6% Raw Material s, Packing Material s and Goods Consu

RESEARCH REPORT Cash Flow Statement

Cash Flow statement A.CASH FLOW FROM OPERATING ACTIVITIES Profit After Taxation Depreciation Operating profit before Working Capital Changes CASH FLOW FROM WORKING CAPITAL CHANGES (Increase)/Decrease in Inventories (Increase)/Decrease in Sundry Debtors Increase/(Decrease) in Current Liabilities Cash generated from Operations Net Cash Flow from Operating Activities (A) B.CASH FLOW FROM INVESTING ACTIVITIES Sale/(Purchase) of Fixed Asset Increase in Capital Work in Progress Net Cash Flow from Investing Activities (B) C. CASH FLOW FROM FINANCING ACTIVITIES Increase/(Decrease) in Total Debt Net Cash Flow from Financing Activity (C) Net Increase/(Decrease) in cash and cash equivalents (A+B+C) Cash and Cash equivalents at the beginning of the year Cash and Cash equivalents at the end of the year 201011 201112 201213 2013-14 2014-15

Interest and Finance Charges 6%

34401 9003 43404

39441 12653 52094

47716 13285 61001

57261 13950 71210

66030 17847 83877

Selling and Administ ration Expenses 31%

Payment to and Provision for Employe es 2%

Other Manufac turing Expenses 38%

-155

-2614

-3016

-3479

-4014

12560

8595

9915

11439

13198

Key Ratios
Particulars OPM% PAT% ROE% ROCE% P/BV(x) P/E(x) EV/EBIDTA Debt Equity
2008-09 2009-10 201011E 201112E

12406 55810

5980 58074

6899 67900

7960 79170

9184 93061

21% 7% 23% 18% 1.22 1.9 4.63 1.63

31% 15% 42% 33% 1.75 6.37 6.7 1.46

31% 16% 34% 32% 1.20 5.7 3 0.90

31% 16% 28% 30% 1.45 6 3.5 0.60

0 10001 10001

-73003 0 -73003

-12653 0 -12653

-13285 0 -13285

-77950 0 -77950

-6786 -6786

-7329 -7329

-7915 -7915

-8549 -8549

-9233 -9233

59024

-22258

47332

57336

5879

30944

89968

67710

115042

172378

89968

67710

115042

172378

178257

Page 8 Rinkesh Shah PG10072

Peer Group Comparison (figures indicated in Rs Cr)

Companies CMP Market Cap. EPS (Rs.) P/E (x) EV/Ebidta(x) Dividend % Net Profit Margin % Binani 88.70 1,672.8 8 13.88 6.37 6.7 35 15.13 ACC 1108.2 5 20,824 .02 59.59 18.84 10.27 205 14.26 Ultratech 1086.80 29,778.32 51.24 20.67 14.90 60 15.30 Ambuja 155.40 23,779. 31 8.26 18.25 10.38 70 16.84

RESEARCH REPORT It will still drop further. This is mainly due to stiff competition and rising input costs. The big major players have fared better as far as Ebidta is concerned. Current trends in the cement industry The cement industry which has been reeling under low-demand scenario witnessed a growth of 7.23% in sales in February. The total dispatches stood at 18.39 million tonnes against 17.15 million tonnes in the same month last year. Besides, production of the building material too was up 6.46% at 18.45 million tonnes compared with 17.33 million tonnes in the previous corresponding month. The three domestic majors ACC, Ambuja and UltraTech Cement came up with positive growth in their sales number in February. ACC, however, showed a robust growth of 17% yearon-year mainly on account of its low base in the previous year, while Ambuja and UltraTech managed a growth of 4-5%.

As we see the peer group comparison table, the company has been compared against some of the giants of this industry. The P/E ratio has been low at 6.37 as compared to its peers which have shown a healthy P/E ratio which is above 15. In the coming years the P/E ratio is likely to go down due to stiff competition. The demand for cement is likely to increase in the next five years due to government spending in the infrastructure and housing sector especially in the rural infrastructure projects. The EV/Ebidta for Binani Cement has been rather low at 6.7 whereas its peers are enjoying a much higher EV/Ebidta which is almost greater than multiple of 10x. The main advantage of EV/EBITDA over the PE ratio ratio is that it is unaffected by a company's capital structure. It compares the value of a business, free of debt, to earnings before interest. EV/Ebidta is a much better ratio to measure profitability than P/E. If a company issues equity to pay off its debt its EPS will come down and subsequently its P/E will go up. This unfair advantage is not there in EV/Ebidta. Therefore, to measure the profitability of the company we use this ratio.The EV/Ebidta for Binani cement is not going to go up according to the research carried out by us.

Page 9 Rinkesh Shah PG10072

RESEARCH REPORT

Road Ahead for the Cement industry According to a recent research report the cement industry in India has emerged as a potential investment hub for international cement giants during the past few years. Even in the wake of economic slowdown, the industry sustained its blistering demand-supply pace and posted positive year on year growth during 2009-10. In view of the upcoming massive infrastructure projects, the cement consumption is expected to advance at 10.6% CAGR growth during FY 2011FY 2014, which is anticipated to strengthen long-term investments viability of the Indian cement industry. The study identified that housing sector is currently the prominent consumer of cement in India and roughly accounts for over 50% of the total cement consumption in the country. The country is witnessing a boom in affordable and luxury housing industry, which is expected to intensify in coming years and the sector will remain the dominant consumer of cement during the forecast period. Further, it has been found that almost all the cement industry players have either finalized their production expansion plans or are in the process of strategy development to speed up production during the next 3-4 years. The stable and fast growing economy and government support is persuading industry majors to capitalize on strong cement demand from massive infrastructure projects. In coming years, the expanded capacity will not only enable players to tap the domestic demand, but will also increase their export considerations.

Page 10 Rinkesh Shah PG10072

RESEARCH REPORT

Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. I, Rinkesh Shah do not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, This Reports only provide information updates and analysis. All opinion for buying and selling are available to investors after understanding the risk. As per SEBI requirements it is stated that, Rinkesh Shah, and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Please send your feedback to rinkesh.shah86@gmail.com Phone: 9773524172.

Page 11 Rinkesh Shah PG10072