Result Review | 3QFY2012

February 22, 2012

Cement Sector
Robust performance
Healthy performance on the volume front: During 3QFY2012, our cement universe posted reasonably healthy 8.1% yoy growth in volumes, much better than 3.9% dispatches growth reported in 1HFY2012. Volume growth in 3QFY2012 was led by strong pick-up in demand across regions, with the western region posting the highest 25.0% yoy growth. The southern region, which had been posting a decline in demand over the past six quarters, showed signs of revival with 3.2% yoy growth, aided by cooling of Telangana agitation. Demand in the western region was boosted by improved offtake from governmentsponsored projects, infrastructure and individual housing segments. Madras Cements, predominantly a south-based player, was the top performer in the universe, registering 19.1% yoy volume growth. Ambuja Cements was the top performer amongst large players, reporting 10.8% yoy growth. Strong performance on the realization front negates cost pressure: Power and fuel cost for the universe rose by 10.7% yoy due to twin effects of higher coal prices (both domestic and imports) and cheaper INR vs. USD. Freight costs were also higher by 12.5% yoy due to the increase in diesel costs and surcharge levied by railways. However, growth in cement realization was too strong to offset cost pressures. OPM of the cement universe rose by healthy 267bp yoy to 21.6%, with all companies under our coverage barring Ambuja Cements posting OPM expansion in the range of 100bp to 1,350bp on a yoy basis. JK Lakshmi posted the highest expansion in OPM of 1,352bp yoy to 21.4%. Cement realization, which had remained strong in the past one year due to producer discipline, was aided by pick-up in demand. Our cement universe posted 18.4% yoy higher realization during the quarter; on a sequential basis, realization was higher by 7.5%. Outlook and valuation: Going ahead, the rate of capacity addition is set to moderate, with only 31mtpa of capacity expected to be added over FY2012-13E, much lower than 55mtpa added over FY2010-11. However, demand slowdown has become a bigger concern with FY2012E demand growth expected to be ~5%. Thus all-India utilization in FY2012 is expected to be 72.4%. In our view, the cement sectors valuations in terms of EV/sales and EV/tonne are trading ahead of the cycle when compared to utilization levels and are almost 40% more expensive than historical valuations during periods of similar utilization levels. Hence, we maintain our Neutral view on the sector. That said, we maintain our Buy recommendation on JK Lakshmi Cement due to its attractive valuations, as it is trading at EV/tonne of US$28 on FY2013E capacity.

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

Sourabh Taparia
022-39357800 Ext 6872 sourabh.taparia@angelbroking.com

Exhibit 1: Relative valuation

CMP Target Company UltraTech ACC* Ambuja Cements* Shree Cement India Cements Madras Cements JK Lakshmi Cement (`) 1,480 1,325 165 2,691 100 140 62 (`) 79 Sales (` cr) FY12E - 18,228 20,033 9,660 10,874 8,603 4,497 4,079 3,165 1,629 9,777 5,383 4,318 3,327 1,868 OPM (%) 21.7 20.3 23.4 25.3 19.3 30.3 18.5 PAT (` cr) EV/EBITDA (x) FY12E 10.3 11.6 11.3 7.5 5.4 6.2 3.8 FY13E 9.0 10.0 9.6 5.5 5.3 5.7 2.6 EV/tonne (US $) FY12E 159 140 158 104 56 63 34 FY13E 154 139 157 82 55 55 28 Neutral Neutral Neutral Neutral Neutral Neutral Buy Reco Upside (%) 27 FY13E FY12E FY13E FY12E FY13E 21.7 2,037 2,267 20.6 1,325 1,311 24.0 1,229 1,422 26.1 18.6 28.2 20.4 237 298 377 123 421 301 379 149

Source: Company, Angel Research, Note: * December ending companies, EV/tonne adjusted for CPP

Please refer to important disclosures at the end of this report

3QFY2012 Results Review | Cement

Universe reports 28.9% top-line growth in 3QFY2012

Exhibit 1: 3QFY2012 revenue growth strong on a yoy basis...
Revenue growth was the highest for players with capacities in North India, primarily because of strong yoy realization growth in the northern and western regions the main markets for these players
(%) 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 UltraTech ACC Ambuja Cements Shree Cement India Cements Madras JK Lakshmi Cements Cement 23.1 27.8 30.2 20.4 28.0 39.7

61.4

Source: Company, Angel Research, Note: The red horizontal line represents the average for our coverage universe; Shree Cements cement business posted revenue growth of 44.9%

Exhibit 2: ...due to a sharp yoy increase in realization

(%) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Ultra Tech Cement ACC Ambuja Cements Shree Cement India Cements Madras JK Lakshmi Cements Cements 16.4 20.3 17.5 33.2 26.3 16.2 8.6

Source: Company, Angel Research

Exhibit 3: ...and healthy yoy growth in dispatches

(%) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 UltraTech ACC Ambuja Cements Shree Cement India Cements Madras JK Lakshmi Cements Cement 5.7 6.3 10.8 8.8 6.9 12.8 19.1

Source: Company, Angel Research

February 22, 2012

3QFY2012 Results Review | Cement

Exhibit 4: Realization per tonne growth on a qoq basis

South-based players witnessed a qoq decline in realization because 3Q is the monsoon season for major part of southern India
(%) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 (2.0) (4.0) 15.0 11.3 11.8 11.4

6.0

0.7

Ultra Tech Cement

ACC

Ambuja Cements

Shree Cement

India Cements

(2.4) Madras JK Lakshmi Cements Cements

Source: Company, Angel Research

Operating costs per tonne of the universe rose by 9.9% yoy

Exhibit 5: Power and fuel cost per tonne increased on a yoy basis
Both imported as well as domestic coal costs were higher on a yoy basis. Power tariffs were also higher on a yoy basis. However, for JK Lakshmi Cement, power and fuel costs per tonne declined because of improvement in usage efficiency
(%) 25.0 20.0 15.0 10.0 5.0 0.0 (5.0) (10.0) Ultra Tech Cement ACC Ambuja Cements Shree Cement India Cements Madras JK Lakshmi Cements Cements (4.6) 18.1 10.8 7.4 (0.2) (8.5) 21.7

Source: Company, Angel Research

Exhibit 6: Freight cost per tonne also witnessed a yoy increase

Higher petroleum products cost and higher railway freight charges played the spoiler here
(%) 25.0 20.0 15.0 10.0 5.0 0.0 Ultra Tech Cement ACC Ambuja Cements Shree Cement India Cements Madras JK Lakshmi Cements Cements 9.1 5.1 18.3 15.6 12.2 8.4 21.1

Source: Company, Angel Research

February 22, 2012

3QFY2012 Results Review | Cement

Operating margin improved albeit costs surged

Exhibit 7: EBITDA margin improvement on a yoy basis...
Resultantly, all players barring northbased players faced margin pressure. Northern players witnessed a huge increase in margins on account of a sharp yoy increase in realization coupled with cost savings due to usage efficiency (particularly for JK Lakshmi Cement power consumption per tonne of cement declined from 80 to 77)
(bp) 1,600 1,400 1,200 1,000 800 600 400 200 0 (200) UltraTech ACC Ambuja Cements Shree Cement India Cements Madras Cements JK Lakshmi Cement 284 101 (63) 697 443 243

1,352

Source: Company, Angel Research

February 22, 2012

Cement Results Review |Review | Cement 3QFY2012 Results February 2011

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement

Analyst ownership of the stock ACC Ambuja India Cements J K Lakshmi Madras Cements Shree Cements UltraTech No No No No No No No Angel and its Group companies ownership of the stock No No No No No No No Angel and its Group companies' Directors ownership of the stock No No No No No No No Broking relationship with company covered No No No 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%)

February 22, 2012

3QFY2012 Results Review | Cement Cement Sector Update | Shree Cement

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800 Research Team
Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Shailesh Kanani Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Hemang Thaker Nitin Arora Ankita Somani Varun Varma Sourabh Taparia Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com Hiten.Sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Infrastructure Metals & Mining Mid-cap Research Associate (Cement, Power) Research Associate (Automobile) Research Associate (Capital Goods) Research Associate (Infra, Real Estate) Research Associate (IT, Telecom) Research Associate (Banking) Research Associate (Cement, Power) sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com shailesh.kanani@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com hemang.thaker@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com Sourabh.taparia@angelbroking.com

CSO & Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Tel.: (022) 3083 7700. Angel Broking Ltd: BSE Sebi Regn No: INB010996539 / PMS Regd Code: PM/INP000001546 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / NSE Sebi Regn Nos: Cash: INB231279838 / NSE F&O: INF231279838/Currency: INE231279838 / MCX Currency Sebi Regn No: INE261279838 / Member ID: 10500 / Angel Commodities Broking Pvt. Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

February 22, 2012