SECTOR UPDATE

27 SEP 2016

Cement Sector Update

Rating and recommendations
UltraTech
Ambuja
ACC
Shree
Ramco
Birla Corp
Orient
Sanghi

Rating
SELL
SELL
SELL
SELL
SELL
BUY
NEU
BUY

TP
3,200
200
1,235
14,074
447
750
180
83

CMP
3,923
255
1,611
17,014
334
690
200
74

A likely drag on prices

Inampro (Platform for Infrastructure and
Materials Providers) was created in 2015 to set
up Government sourcing of cement (and later
steel/other construction inputs) directly from
producers. It received widespread attention,
primarily due to few (very low) rates quoted at
the time (Rs 120/bag). However, the initiative
did not take off. Order quantities remain
dismal. Our takeaways from a quick revisit to
the portal:
The offered stock is now 26.9 mnT (from ~10
mTPA an year ago). Largest quantities are
from UltraTech (6.4 mTPA) and Shree
Cement (4.26 mTPA). They make up for ~40%
of the total offered quantity between them.

The factory gate prices (levies inclusive)

Ankur Kulshrestha
ankur.kulshrestha@hdfcsec.com
+91-22-6171-7346
Sarfaraz Singh
sarfaraz.singh@hdfcsec.com
+91-22-6171 7331

implied in the offers are Rs 15-132 lower

than the current headline market prices
across the regions. In South, ~8.7 mT cement
is available at ~Rs 250 at factory gates vs
current headline market rates of ~Rs 350-400
across markets. Similarly for Central India,
~5% of the installed capacity is on offer at
~Rs 75 discount to current prices. Even
adjusted for freight, the differences are
substantial. However, the implied net plant
realizations (NPRs) are still at some premium
as compared to the reported NPRs

Terms of supply under Inampro allow for

escalation of prices by up to 10% each year,

starting April 1, 2016. The quantity offered is

to be made available for three years on a

pro-rata basis. Consignees are allowed to
vary the quantity by upto 30% of the initial
orders, potentially increasing the obligation
for suppliers under Inampro. We note the
supply can be ordered for all government
projects (Central/State Govt. Organizations,
Municipal Corporations, Govt. Owned
Corporations, local bodies, etc) and is not
limited to supplies for roadbuilding.

No immediate worry: The offered quantity

makes up <10% of the installed capacities of
each region. Further, the realized prices are
higher than the existing NPRs of respective
cos on Inampro. However, it is likely that
once ordering activity increases from the
portal, it will weigh down on the channel
pricing, given that the government is a large
buyer in almost every geography. Our
channel checks with users (mainly
construction companies) indicate that offtake
may increase as the road project awarding
nears completion and execution picks up in
2nd half of the year.

Energy costs have increased substantially

and their pass through remains far from

certain. A shift in government orders to the
portal might hurt suppliers in underutilized
geographies. We remain cautious and
selective on the sector given prohibitively
high valuations. Prefer Sanghi Industries and
Birla Corp, while ACC/Ambuja are top SELLS.

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

CEMENT SECTOR UPDATE

Total quantity on offer is ~27

mT currently, with quantity in
South being the largest at a
shade under 9 mT
UltraTech and Shree Cement
comprise ~40% of the total
capacity on offer. Shree Cement
has offered ~40-50% of the
total quantity in North and
Central

Breakup of the offered cement quantity under Inampro

All India

South
Ultratech
Shree
JSW
Bharat Hitech
Dalmia
JK Lakshmi
Ambuja
Kesoram
16% IndiaCem
Ramco
8%
Others

21%

3%
3%
5%
5% 6%

7%

JSW Cement

23%

30%

24%

2%

North
Ultratech

1% 1%

2%
9%

Shree
46%

Kesoram
India
Cements
NCL

5%

JK Lakshmi

14%

Ambuja
JK

Ramco

5%

14%

6%

8%

9%

Dalmia

ACC
27%

CCI

Total: 8.73 mT

Total: 26.89 mT

Ultratech

Total: 6.56 mT

Source: Inampro, HDFC sec Inst Research

East

West
4%

5%

32%

4%

Bharat Hitech
Ultratech

5%

Central
4%

9%

42%

Sanghi

5%

Dalmia
Shree

6%

19%

Ambuja

Ramco s

JSW

Total: 5.74 mT

39%

9%

Shree
Reliance

Saurashtra

8%

Ambuja

Others

5%
9%

JK Lakshmi

Century
25%

Ultratech

Ultratech
23%
Heidelberg

ACC
10%

13%

Total: 3.39 mT

Others

24%

Ambuja

Total: 2.47 mT

Source: Inampro, HDFC sec Inst Research

Page | 2

CEMENT SECTOR UPDATE

4%

4%

4%

Heidelberg

Sagar

Orient

4%
Ambuja

5%
Ramco

5%

7%
Parasakti

IndiaCem

7%
Deccan

10%
Reliance

7%

10%
Dalmia

Zuari

10%
Vicat

9%

10%
Kesoram

Bharathi

11%
Sanghi

10%

12%
Bhavya

Ultratech

12%

16%
JKLC

CCI

16%
Shree

20%
Saurashtra

NCL

25%

34%
JSW

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

47%

% of capacity

Bharat Hitech

Source: Inampro, HDFC sec Inst Research

Offered quantities by region (mT)

OPC

PPC

PSC

Offered quantities as % of installed capacity

% of Installed capacity
8.5%
9%

SRPC

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

8%

6.7%

7%

6.1%

6%

5.8%
4.9%

5%
4%
3%
2%

Source: Inampro, HDFC sec Inst Research

Central

South

West

North

0%

East

WEST

SOUTH

NORTH

1%

EAST

Among regions, East has the

highest proportion of its
installed capacity (~8.5%) on
offer under Inampro.

% of annual capacities committed under Inampro

CENTRAL

Bharat Hitech, has put on offer

~50% of its capacity (it runs a
grinding capacity of ~0.4 mTPA)
in West Bengal

Source: Inampro, HDFC sec Inst Research

Page | 3

CEMENT SECTOR UPDATE

The factory gate prices

(inclusive of levies) implied in
the offers are Rs 15-132 lower
than the current market prices
across the region. The
difference is significant even if
freight is taken into account.

Comparison of the implied pricing with current prices

Rs/bag

North

South

East

West

Central

Ex-works prices (Net plant realisations) implied

185

192

206

190

181

Ex works prices (with levies)

235

248

265

244

235

Current prices (Upper end of wholesale prices)

290

375

285

280

315

51

132

15

37

74

Differential
Source: Inampro, Cement market participants, HDFC sec Inst Research

Comparison of the implied pricing with actual realizations

Rs/bag offered

The implied net cement

realizations (NCRs) are at a
premium compared to reported
NCRs of cement cos.

Volumes (t)

Central

East

North

South

West

Pan India

NCR

Diff vs NCR
(%)
10.8
(1.9)
46.9
9.3
9.0
42.9
26.1
58.9
49.3
2.5

Shree Cement
4,260,000
155
166
163
147
Dalmia Cement
1,546,000
206
204
205
209
Ambuja Cement
1,268,800
238
266
218
248
169
India Cements
750,000
211
211
193
Ramco Cements
719,963
225
217
218
200
Sanghi Cement
460,000
179
179
125
ACC
440,000
205
226
218
235
187
214
170
Orient Cement
300,000
182
228
205
129
Deccan Cements
150,000
209
209
140
OCL India
75,000
205
205
200
Source: Inampro, Company, HDFC sec Inst Research
Simple average of prices offered used, NCR is calculated using reported realizations less outward freight for the period Apr-Mar 2016

List of plants that offered the largest quantities

Company

Plant Location

Total Price (Rs)

Available quantity (tonnes)

Shree Cement

Pali

North

Bharat Hitech

Purulia

East

158

200

2,100,000

213

274

1,845,900

JSW Cement

Kurnool

South

151

194

1,740,000

Ultratech Cement

Baloda Bazaar

East

200

258

1,065,000

Shree Cement
Shree Cement

Bulandshahr

Central

175

227

900,000

Panipat

North

175

223

900,000

Ultratech Cement

Chittorgarh

North

187

240

800,000

240

525,000

Region

Unit Price (Rs)

Ultratech Cement Neemuch

Central
187
Source: Inampro, HDFC sec Inst Research
Unit price is ex-plant gate price without any tax or any freight.
Total price is the price payable by the purchaser inclusive of all applicable taxes and duties.

Page | 4

CEMENT SECTOR UPDATE

Terms of supply under Inampro

allow for escalation of prices
by up to 10% each year, with
the quantity implied being
made available for three years
on a pro-rata basis.
Consignees are allowed to vary
the quantity by upto 30% of
the initial orders, potentially
increasing the commitment for
cement companies under
Inampro.

Key terms and conditions of supply of cement

The ex-factory rates to be quoted by cement manufacturers for supply of cement from their plants are
inclusive of all labour, material, taxes and duties on inputs, cost of production and cost of packing and
loading in the vehicles.

The quoted ex-factory rates would be fixed for a period of 3 years starting 1st April 2016, with 10%

escalation per year cumulatively on 1st of April every year. Cement manufactures however would have
the freedom to dynamically increase / decrease the price of cement within the ceiling price.

Supplies for the ordered quantity will be arranged at the quoted rates, terms and conditions directly to

all Central Govt./State Govt. organizations, Municipal Corporations, Govt. Owned Corporations, local
bodies, etc./Contractors/Concessionaires (herein referred as consignees) on receipt of supply orders
from the consignees

Minimum quantity of cement would be committed/made available for a period of 3 years on annual
pro-rata basis. The flexibility to increase the offered quantity within the ceiling base price would be
available.

For all orders above 100t, cement should be made available within 15 days of the issue of supply
instructions, failing which the bank guarantees of the cement manufacturers will be forfeited.

Consignees shall have the right to vary the quantity by (+/-) 30% at the quoted rate, terms and

conditions of the initial orders without assigning any reason. Cement manufacturer shall be bound to
supply cement as per the actual requirement at the quoted rate and terms & conditions of the initial
orders. For variation in quantity, no compensation will be admissible to cement manufacturer.

Page | 5

CEMENT SECTOR UPDATE

SECTOR VIEW AND VALUATIONS

VALUATION MATRIX
CEMENT UNIVERSE OVERVIEW
Sales (Rs bn)
Growth (%)
EBITDA (Rs bn)
Margin (%)
PAT (Rs bn)
Growth (%)
EPS (Rs)
ROIC (%)
ROE (%)
BV (Rs)
Net Debt/Equity (%)
P/E (x)
P/B (x)
EV/EBITDA (x)
EV/Tonne (US$)

UltraTech
FY17E FY18E
264.0 306.7
10.7
16.2
59.7
73.0
22.6
23.8
32.5
43.4
49.6
33.3
118.6 158.1
18.9
23.9
14.7
16.9
863 1,010
N/M
N/M
33.1
24.8
4.5
3.9
17.8
14.0
234
226

Ambuja
CY16E CY17E
107.9 125.9
15.1
16.7
21.6
28.8
20.0
22.9
13.8
19.1
61.5
38.3
8.9
12.3
21.1
33.2
13.1
16.9
70
76
N/M
N/M
28.6
20.7
3.7
3.4
15.7
11.2
168
160

ACC
CY16E CY17E
120.3 141.6
5.2
17.8
18.1
26.5
15.0
18.7
8.9
15.0
20.0
67.4
47.5
79.6
7.5
15.7
9.7
15.6
472
511
N/M
N/M
33.9
20.2
3.4
3.2
15.6
10.4
127
123

Shree Cement Ramco Cements

FY17E FY18E FY17E FY18E
91.7 111.7
39.2
42.7
23.5
21.9
9.3
9.0
28.6
35.1
11.5
12.5
31.2
31.4
29.3
29.3
14.6
18.2
6.0
6.9
233.7
25.0
2.4
16.1
418.3 522.9
25.0
29.1
36.2
37.5
17.5
21.3
21.3
21.7
17.9
17.9
2,159 2,654
151
175
N/M
N/M
0.4
0.2
40.7
32.5
23.9
20.6
7.9
6.4
4.0
3.4
20.0
15.9
13.6
12.0
299
241
171
163

Installed cement capacity (mn tpa)

66.8
66.8
29.7
29.7
32.9
32.9
28.2
Capacity utilisations (%)
81.0
87.0
79.9
86.3
76.3
83.9
75.6
Volumes (mn T)
54.1
58.1
23.7
25.6
25.1
27.6
21.3
Vol growth YoY (%)
9.7
7.4
8.8
8.0
6.0
10.0
49.4
Realisation/tonne (Rs)
4,235 4,572 4,553 4,920 4,800 5,141 4,060
EBITDA/tonne (Rs)
1,076 1,231
911 1,124
571
814 1,214
Source: Companies, HDFC sec Inst Research
Note: Price as of September 26, 2016. INR/US$ = 67.0
1
December YE; 2 Shree Cement EV/tonne calculated adjusting power division EV at 5x FY16E EBITDA

34.2
74.4
25.4
19.4
4,126
1,285

13.5
56.0
7.6
4.4
5,111
1,521

13.5
60.4
8.2
7.9
5,162
1,535

Birla Corp
FY17E FY18E
38.1
41.6
18.1
9.2
4.4
6.0
11.7
14.3
3.3
4.6
110.0
38.9
42.9
59.6
17.0
27.7
11.6
14.4
388
440
N/M
N/M
16.1
11.6
1.8
1.6
10.5
6.9
74
65

Orient
FY17E
FY18E
22.0
28.2
46.4
28.1
2.6
6.0
11.9
21.5
0.3
3.1
(55.1) 1,019.3
1.4
15.3
6.3
18.8
6.3
2.8
49
62
1.2
0.8
146.4
13.1
4.1
3.2
20.4
8.4
98
93

Sanghi
FY17E FY18E
13.1
16.2
68.4
23.6
2.7
4.2
20.5
26.0
1.1
2.4
71.0 127.3
4.8
10.9
7.3
11.6
11.0
21.1
46
57
0.4
0.2
15.4
6.8
1.6
1.3
7.7
4.4
76
67

9.3
95.0
8.8
9.3
3,947
504

8.0
78.3
6.3
45.4
3,511
418

4.0
81.3
3.3
57.1
4,023
826

9.3
95.0
8.8
0.0
4,342
675

8.0
85.7
6.9
9.5
4,107
882

4.0
95.0
3.8
17.0
4,252
1,108

Page | 6

CEMENT SECTOR UPDATE

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