Sei sulla pagina 1di 9

Produced by: ABN AMRO

Bank NV India Branch

Tuesday 27 November 2007 Change of target price

India Cements Buy


Absolute performance

n/a
Well positioned for growth Short term (0-60 days)

Neutral
IC's recently announced plan to set up 4mmt of capacity in North Market relative to region

India should not only secure a 20% volume CAGR for the next four Materials
years, but also reduce its exposure to a single region. We raise our India
FY08-10F EPS by 2-5% and our target price to Rs350.65.
Price

Rs285.00
Key forecasts
Target price
FY06A FY07A FY08F FY09F FY10F Rs350.65 (from Rs287.76)
Revenue (Rsm) 15401.1 20498.6 31323.0 39466.5 43996.2 Market capitalisation
EBITDA (Rsm) 2593.2 6618.5 11794.7% 14832.9% 14479.0%
Rs68.40bn (US$1.72bn)
Reported net profit (Rsm) 436.8 4496.2 7769.6% 9277.1% 8807.4%
Avg (12mth) daily turnover
Normalised net profit (Rsm)¹ 341.1 4496.2 7769.6 9277.1 8807.4
Normalised EPS (Rs) 1.55 20.5 28.6 34.2 32.5 Rs166.28m (US$3.96m)
Dividend per share (Rs) 0.00 1.00 3.00% 3.50% 3.50% Reuters Bloomberg
Dividend yield (%) 0.00 0.35 1.05 1.23 1.23 ICMN.BO ICEM IN
Normalised PE (x) 183.4 13.9 9.95 8.34 8.78
EV/EBITDA (x) 32.1 12.1 5.64 4.60 4.89
Price/book value (x) 6.95 4.38 2.45 1.89 1.56
ROIC (%) 2.62 8.41 14.2 15.5 11.2
1. Post-goodwill amortisation and pre-exceptional items year to Mar, fully diluted
Accounting Standard: Local GAAP
Source: Company data, ABN AMRO forecasts
Price performance (1M) (3M) (12M)
Price (Rs) 295.4 217.3 227.4
Company prepares itself for the next leg of growth Absolute % -3.5 31.2 25.3
Rel market % -3.5 -1.7 -10.8
IC is working on capex of Rs8.4bn to raise capacity from 9.5mmt to 14.1mmt by
Rel sector % 2.9 24.5 0.8
FY09 at its plants in South India. Last week it announced a plan to set up greenfield
cement plants in Rajasthan and Himachal Pradesh, totalling 3.5-4mmt, at a capital Nov 04 Dec 05 Dec 06
350
cost of Rs14.5bn. The board has approved an equity fund raising of US$150m (about 300
Rs6bn) for the proposed expansion. IC expects to become an 18mmt cement 250
company by end-FY10, with around 25% of its sales generated in North India. 200
150
Stay positive on the cement sector, but we see little upside to margins 100
We expect overall capacity in the Indian cement industry to rise 96.5mmt over FY08- 50

10 - 14mmt in FY08, 54.1mmt in FY09 and 28.5mmt in FY10. We forecast a 0

moderate surplus of 4.2mmt on an all-India basis, adjusting for initial low utilisation ICMN.BO Sensex

and as we expect most of the capacity addition in 2H09. However, the surplus would Stock borrowing: n/a
be more evident in the northern and central markets, where we expect some pricing Volatility (30-day): 57.06%

pressure in late FY09. In FY10, we expect the surplus to rise to 21.5mmt, putting Volatility (6-month trend): ↑
52-week range: 322.80-145.00
further pressure on cement prices. We assume a 5% drop in average realisations in
Sensex: 19247.54
FY10. BBG AP Construction: 346.08
Source: ABN AMRO, Bloomberg
We raise our EPS estimates by 2-5% on a fully diluted basis
We raise our FY09 and FY10 volume estimates by 5% each, and now expect cement
sales of 11.5mmt in FY09 and 13.5mmt in FY10. We also dilute the equity to factor in
the proposed fundraising of US$150m. We raise our EBITDA estimates by 12-14%
and EPS estimates by 2-5% for FY08-10.

Maintain Buy with a increased target price of Rs350.65


We value IC at a 28% discount to the average FY09F EV/EBITDA valuations of ACC
and Ambuja Cements, due to the risks inherent in the geographical concentration of
IC's capacity. Reflecting our earnings revisions, we raise our target price to Rs350.65
Analyst
(from Rs287.76), implying an FY09F PER of 10.2x.
Mohan Swamy
India
+91 22 6715 5304
mohan.swamy@in.abnamro.com
Important disclosures can be found in the Disclosures Appendix.
Priced at close of business 23 November 2007. Use of %& indicates that the line item has changed by at least 5%.
www.abnamroresearch.com

83/84 Sakhar Bhawan, Nariman Point, Mumbai 400 021, India


I N V E S T M E N T V I E W

Strong visibility on volumes

IC plans to raise capacity at its existing plants from 9.5mmt to 18mmt by


FY10. The expansion is to be at a very economical capital cost of US$33/mt
(a third of the cost of setting up a greenfield plant).

IC plans to invest Rs8.5bn over the next 15 months to raise its cement capacity from
the current 9.5mmt to 14mmt. These expansions are being done at its existing
cement plants in South India at a very economical cost of US$33/mt (the cost of
setting up a greenfield cement plant is around US$100).

Table 1 : India Cement's expansion plans

Expansion plans Capacity increase (mmt) Status of commissioning


Modernisation of Sankaridurg plant 0.6 Commissioned
Expansion of Vishnupuram plant 0.8 April-June 2008
Upgradation of capacities in other plants 0.6 Dec 07-Sep 08
Cement grinding unit at Chennai 1 April-June 2008
Cement grinding unit at Perili 1 April-June 2008
Second line at Visaka, A.P 1.2 Oct-December 2008
Source: India Cement

The board of directors, at its 19 November meeting, also announced a plan to set up
two greenfield units in Rajasthan and Himachal Pradesh, where the company has
secured mining rights for limestone. This expansion is to be done at a capital cost of
Rs14.5bn, which is to be partly funded by an equity fundraising of US$150m. The
company expects to commission the plants in 2010. The move is in line with the
company’s strategy of diversifying geographically into the northern markets.

An 18% CAGR in cement volumes over the next four years


We expect IC’s cement volumes to show an 18% CAGR over the four years, ensuring
above-industry average earnings growth. We expect cement prices to fall in FY10,
but IC’s strong volume growth should largely mitigate the negative impact of this.

Table 2 : Summary of cement volume momentum

Strong visibility of cement volumes


FY08F FY09F FY10F FY11F FY12F
Capacity (mmt) 9.5 14.1 14.1 18.1 18.1

Volumes mmt 9.3 11.5 13.5 15.5 18


% change 23% 24% 17% 19% 16%
Source: ABN AMRO forecasts

IN DIA CEMENT S 27 NOVE MBE R 20 07


2
A P P E N D I X

Table 3 : Forecast revision


FY08F FY09F FY10F
EPS (Old) 28.17 32.68 31.485
EPS (New) 28.63 34.19 32.46
% change 2% 5% 3%

EBITDA (old) 10500.1 13065.6 12971.4


EBITDA (new) 11794.73 14832.94 14479.01
% change 12% 14% 12%
Source: ABN AMRO forecasts

Table 4 : Relative performance of cement companies ( April-September 2007)


Ambuja India Madras
Ultratech ACC
Cements Cements Cements
Cement sales (mmt) 8.2 8 10.2 4.6 2.8

EBITDA (Rsbn) 10.45 8.2 9.9 5.87 4.02

EBITDA/mt 1273 1014 971 1283 1423

EBITDA margin (%) 36.9% 31.5% 29.7% 39.7% 41.3%

Growth in EBITDA (yoy) 28.3% 24.7% 27.1% 70.5% 34.4%

Source: Company releases

Table 5 : India Cements’ valuations on a EV/mt basis

India Cements's valuation when all expansions are completed


Fully diluted equity
Current (Rsm) 2,514
Proposed fund raising of US$150m (Rsm) 200.00
(assuming an issue price of Rs300/share)
Fully diluted equity (Rsm) 2,714
Market cap (Rsm) 81408

Debt as of FY10F 2743.753

Enterprise value (Rsm) of India Cements 84,151


Capacity (mmt) 18
EV/mt (Rs) 116.9

Enterprise value of Ambuja Cements for 18mmt, currently (Rsm) 217,362


Source: ABN AMRO estimates

IN DIA CEMENT S 27 NOVE MBE R 20 07


3
APP ENDI X

Table 6 : All India cement demand supply scenario

Cement Total
Net effective Potential Supply Domestic exports Exports Demand/Supply
FY08E Capacity # at 95% utilisation demand
North 47.1 41.8 50.6 -8.8
East 17.5 15.3 25.7 0.7 -11.1
Central 32.4 30.6 7.6 23.0
North+East+Central 97.1 87.7 83.9 0.7 3.1

West 28.4 27.0 31.1 7 -11.1


South 52.4 48.0 49.7 -1.8
South+West 80.8 74.9 80.8 7 -12.9
Total All India 177.8 162.6 164.7 4.5 7.7 -9.7

Total Cement sales 169.17 9.1%


Total sales 172.37 9.0%
Incremental 14.00 9.3 15.5
Cement demand growth 9.1%
Capacity utilisation rate 96.9%
Capacity growth 8.5%
# Gross capacity would be 6.2mmt more, adding the non-operational capacity

FY09E
North 62.5 52.4 57.2 -4.8
East 24.7 20.3 28.0 0.7 -8.5
Central 35.4 32.3 8.5 23.8
North+East+Central 122.6 105.0 93.8 0.7 10.5

West 33.9 29.7 35.1 6 -11.4


South 75.4 61.3 56.2 5.1
South+West 109.3 91.0 91.3 6 -6.3
Total All India 231.9 196.0 185.1 4.5 6.7 4.2

Total Cement sales 189.55


Total sales 191.75
Incremental 54.1 33.3 20.38
Cement demand growth 12.0%
Capacity utilisation rate 82.7%
Capacity growth 30.4%
# Gross capacity would be 6.2mmt more, adding the non-operational capacity

FY10E
North 70.0 63.1 64.0 -1.0
East 29.7 26.0 31.0 0.7 -5.7
Central 35.9 33.9 9.6 24.3
North+East+Central 135.6 123.0 104.6 0.7 17.7

West 44.9 37.7 39.3 5.5 -7.1


South 79.9 73.9 62.9 10.9
South+West 124.8 111.6 102.3 5.5 3.8
Total All India 260.4 234.5 206.8 4.5 6.2 21.5

Total Cement sales 211.34


Total sales 213.04
Incremental 28.5 38.6 21.8

Cement demand growth 11.5%


Capacity utilisation rate 81.8%
Capacity growth 12.3%
Source: ABN AMRO and Cement Manufacturers’ Association

IN DIA CEMENT S 27 NOVE MBE R 20 07


4
DISCLOSURES APPENDIX

Recommendation structure
Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside
of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more
from the suggested entry price range, and a Trading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading
recommendation time horizon is 0-60 days.
Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A
Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For listed property trusts (LPT) or real estate investment trusts (REIT) the
recommendation is based upon the target price plus the dividend yield, ie total return. This structure applies to research on Asian and European stocks published
from 1 November 2005; on Australian stocks from 7 November 2006; on continental European small and mid cap stocks from 23 November 2006; and on Brazilian
stocks from 18 June 2007.
Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance
parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months.
Sector relative to market: The sector view relative to the market is the responsibility of the strategy team. Overweight/Underweight implies upside/downside of
10% or more and Neutral implies less than 10% upside/downside.
Target price: The target price is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary
catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a
view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ
from 'fair' value.
Asset allocation: The asset allocation is the responsibility of the economics team. The recommended weight (Over, Neutral and Under) for equities, cash and bonds
is based on a number of metrics and does not relate to a particular size change in one variable.
Stock borrowing rating: The stock borrowing rating is the subjective view and responsibility of the ABN AMRO equity finance team: Easy implies ready availability.
Moderate implies some availability. Hard implies availability is tight. Impossible implies no availability.

Distribution of recommendations
The tables below show the distribution of ABN AMRO's recommendations (both long term and trading). The first column displays the distribution of
recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where ABN
AMRO has an investment banking relationship.

Long Term recommendations (as at 27 Nov 2007) Trading recommendations (as at 27 Nov 2007)
Global total (IB%) Asia Pacific total Global total (IB%) Asia Pacific total
(IB%) (IB%)
Buy 596 (15) 392 (4) Trading Buy 6 (0) 6 (0)
Add 1 (0) 1 (0)
Hold 427 (19) 258 (4)
Reduce 0 (0) 0 (0)
Sell 76 (5) 52 (0) Trading Sell 0 (0) 0 (0)
Total (IB%) 1100 (16) 703 (3) Total (IB%) 6 (0) 6 (0)

Valuation and risks to target price


India Cements (RIC: ICMN.BO, Rec: Buy, CP: Rs285.00, TP: Rs350.65): Our target price is based on a 28% discount (20% previously) to ACC and Ambuja
Cement's 2009F EV/EBITDA. We have raised this discount as we see a premium in ACC and Ambuja Cement due to Holcim's pending open offer, and due to IC's
heavy dependence on the south. The key risk would be lower-than-expected incremental demand in South India, which would put our cement price assumptions at
risk. Also, any delay in expansion in the north would impact our FY08-09F volume, and hence our earnings estimates.

India Cements

Stock performance, recommendations and coverage (as at 26 Nov 2007) Trading recommendation
history (as at 27 Nov 2007)
Date Rec Analyst
n/a

Mohan Swamy started covering this stock on 12 Jan 06


Moved to new recommendation structure between 1 November 2005 and 31 January 2006

Regulatory disclosures
Subject companies: ICMN.BO
ABN AMRO beneficially own 1% or more of a class of common equity securities of this company: ICMN.BO

IN DIA CEMENT S 27 NOVE MBE R 20 07


5
DISCLOSURES APPENDIX

Global disclaimer
 Copyright 2007 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO"). All rights reserved.
This material was prepared by the ABN AMRO affiliate named on the cover or inside cover page. It is provided for informational purposes only and does not
constitute an offer to sell or a solicitation to buy any security or other financial instrument. While based on information believed to be reliable, no guarantee is
given that it is accurate or complete. While we endeavour to update on a reasonable basis the information and opinions contained herein, there may be regulatory,
compliance or other reasons that prevent us from doing so. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in
this material are as of the date indicated and are subject to change at any time without prior notice. The investments referred to may not be suitable for the
specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent
judgement. The stated price of any securities mentioned herein is as of the date indicated and is not a representation that any transaction can be effected at this
price. Neither ABN AMRO nor other persons shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost
profits arising in any way from the information contained in this material. This material is for the use of intended recipients only and the contents may not be
reproduced, redistributed, or copied in whole or in part for any purpose without ABN AMRO's prior express consent. In any jurisdiction in which distribution to
private/retail customers would require registration or licensing of the distributor which the distributor does not currently have, this document is intended solely for
distribution to professional and institutional investors.
Australia: Any report referring to equity securities is distributed in Australia by ABN AMRO Equities Australia Ltd (ABN 84 002 768 701, AFS Licence 240530), a
participant of the ASX Group. Any report referring to fixed income securities is distributed in Australia by ABN AMRO Bank NV (Australia Branch) (ABN 84 079 478
612, AFS Licence 238266). Australian investors should note that this document was prepared for wholesale investors only.
Brazil: ABN AMRO Corretora de Cambio e Valores Mobiliarios S.A. is responsible for the part of this report elaborated by research analysts registered at Comissao
de Valores Mobiliarios - CVM, as indicated. Investors resident in Brazil who receives this report should rely only on research prepared by research analysts
registered at CVM. In addition to other representations contained in this report, such research analysts state that the views expressed and attributed to them
accurately reflect solely and exclusively their personal opinions about the subject securities and issuers and/or other subject matter as appropriate, having such
opinion(s) been produced freely and independently from any party, including from ABN AMRO or any of its affiliates.
Canada: The securities mentioned in this material are available only in accordance with applicable securities laws and may not be eligible for sale in all
jurisdictions. Persons in Canada requiring further information should contact ABN AMRO Incorporated.
EEA: This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or
independent explanation of the matters contained in the material. Any recommendations contained in this document must not be relied upon as investment advice
based on the recipient's personal circumstances. In the event that further clarification is required on the words or phrases used in this material, the recipient is
strongly recommended to seek independent legal or financial advice.
Denmark: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Copenhagen Branch
is subject to local supervision by Finanstilsynet, the Danish Financial Supervisory Authority. All analysts located in Denmark follow the recommendations from the
Danish Securities Dealers Association.
Finland: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Helsinki Branch is
subject to local supervision by Rahoitustarkastus, the Finnish Financial Supervision Authority.
Hong Kong: This document is being distributed in Hong Kong by, and is attributable to, ABN AMRO Asia Limited which is regulated by the Securities and Futures
Commission of Hong Kong.
India: Shares traded on stock exchanges within the Republic of India may only be purchased by different categories of resident Indian investors, Foreign
Institutional Investors registered with The Securities and Exchange Board of India ("SEBI") or individuals of Indian national origin resident outside India called Non
Resident Indians ("NRIs") and Overseas Corporate Bodies ("OCBs"), predominantly owned by such persons or Persons of Indian Origin (PIO). Any recipient of this
document wanting additional information or to effect any transaction in Indian securities or financial instrument mentioned herein must do so by contacting a
representative of ABN AMRO Asia Equities (India) Limited.
Italy: Persons in Italy requiring further information should contact ABN AMRO Bank N.V. Milan Branch.
Japan: This report is being distributed in Japan by ABN AMRO Securities Japan Ltd to institutional investors only.
Malaysia: ABN AMRO research, except for economics and FX research, is not for distribution or transmission into Malaysia.
New Zealand: This document is distributed in New Zealand to institutional investors by ABN AMRO Securities NZ Limited, an NZX accredited firm, and to retail
investors by ABN AMRO Craigs Limited, an NZX accredited firm. ABN AMRO Craigs Limited and/or its partners and employees may, from time to time, have a
financial interest in respect of some or all of the matters discussed.
Russia: The Russian securities market is associated with several substantial risks, legal, economic and political, and high volatility. There is a relatively high
measure of legal uncertainty concerning rights, duties and legal remedies in the Russian Federation. Russian laws and regulations governing investments in
securities markets may not be sufficiently developed or may be subject to inconsistent or arbitrary interpretation or application. Russian securities are often not
issued in physical form and registration of ownership may not be subject to a centralised system. Registration of ownership of certain types of securities may not
be subject to standardised procedures and may even be effected on an ad hoc basis. The value of investments in Russian securities may be affected by fluctuations
in available currency rates and exchange control regulations.
Singapore: Any report referring to equity securities is distributed in Singapore by ABN AMRO Asia Securities (Singapore) Pte Limited (RCB Regn No. 198703346M)
to clients who fall within the description of persons in Regulation 49 of the Securities and Futures (Licensing and Conduct of Business) Regulations and Regulations
34 and 35 of the Financial Advisers Regulations. Any report referring to non-equity securities is distributed in Singapore by ABN AMRO Bank NV (Singapore Branch)
Limited to clients who fall within the description of persons in Regulations 34 and 35 of the Financial Advisers Regulations. Investors should note that this material
was prepared for accredited investors only. Recipients who do not fall within the description of persons under Regulation 49 of the Securities and Futures
(Licensing and Conduct of Business) Regulations or Regulations 34 and 35 of the Financial Advisers Regulations should seek the advice of their independent
financial advisor prior to taking any investment decision based on this document or for any necessary explanation of its contents.
Sweden: ABN AMRO Bank N.V. is authorised and regulated in the Netherlands by De Nederlandsche Bank. In addition, ABN AMRO Bank N.V., Stockholm Branch is
subject to local supervision by the Swedish Financial Supervisory Authority.
Thailand: Pursuant to an agreement with Asia Plus Securities Public Company Limited (APS), reports on Thai securities published out of Thailand are prepared by
APS but distributed outside Thailand by ABN AMRO Bank NV and affiliated companies. Responsibility for the views and accuracy expressed in such documents
belongs to APS.
United Kingdom: All research is distributed by ABN AMRO Bank NV, London Branch, which is authorised by De Nederlandsche Bank and regulated by the Financial
Services Authority for the conduct of UK business. The investments and services contained herein are not available to private customers in the United Kingdom.
United States: Except for any documents relating to foreign exchange, FX or global FX, distribution of this document in the United States or to US persons is
intended to be solely to major institutional investors as defined in Rule 15a-6(a)(2) under the US Securities Act of 1934. All US persons that receive this document
by their acceptance thereof represent and agree that they are a major institutional investor and understand the risks involved in executing transactions in
securities. Any US recipient of this document wanting additional information or to effect any transaction in any security or financial instrument mentioned herein,
must do so by contacting a registered representative of ABN AMRO Incorporated, Park Avenue Plaza, 55 East 52nd Street, New York, N.Y. 10055, US, tel + 1 212
409 1000, fax +1 212 409 5222.
- Material means all research information contained in any form including but not limited to hard copy, electronic form, presentations, e-mail, SMS or WAP.
_________________________________________________________________________________________________________________________________
The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or
analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and,
(2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report.
On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
_________________________________________________________________________________________________________________________________
For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest
published research on those stocks at www.abnamroresearch.com.
Disclosures regarding companies covered by ABN AMRO group can be found on ABN AMRO's research website at www.abnamroresearch.com.
ABN AMRO's policy on managing research conflicts of interest can be found at https://www.abnamroresearch.com/Disclosure/Disclosure.AspX?MI=5.
Should you require additional information please contact the relevant ABN AMRO research team or the author(s) of this report.

IN DIA CEMENT S 27 NOVE MBE R 20 07


6
INDIA CEMENTS: KEY FINANCIAL DATA

Income statement
Rsm FY06A FY07A FY08F FY09F FY10F
Revenue 15401.1 20498.6 31323.0 39466.5 43996.2
Cost of sales -12808 -13880 -19528 -24634 -29517
Operating costs n/a n/a n/a n/a n/a
EBITDA 2593.2 6618.5 11794.7 14832.9 14479.0
DDA & Impairment (ex gw) -788.7 -776.8 -1124.7 -1412.2 -1293.4
EBITA 1804.5 5841.7 10670.0 13420.7 13185.6
Goodwill (amort/impaired) n/a n/a n/a n/a n/a
EBIT 1804.5 5841.7 10670.0 13420.7 13185.6
Net interest -1489.3 -1430.3 -1007.6 -272.7 -144.6
Associates (pre-tax) n/a n/a n/a n/a n/a
Forex gain / (loss) n/a n/a n/a n/a n/a
Exceptionals (pre-tax) n/a n/a n/a n/a n/a
Other pre-tax items 72.5 101.6 333.9 155.0 155.0
Reported PTP 387.8 4513.0 9996.4 13303.0 13196.1
Taxation -46.7 -16.8 -2226.8 -4025.9 -4388.7
Minority interests n/a n/a n/a n/a n/a
Exceptionals (post-tax) 95.7 0.00 0.00 0.00 0.00
Other post-tax items 0.00 0.00 0.00 0.00 0.00
Reported net profit 436.8 4496.2 7769.6 9277.1 8807.4
Normalised Items Excl. GW 95.7 0.00 0.00 0.00 0.00
Normalised net profit 341.1 4496.2 7769.6 9277.1 8807.4
Source: Company data, ABN AMRO forecasts year to Mar

Balance sheet
Rsm FY06A FY07A FY08F FY09F FY10F
Cash & market secs (1) 436.2 3357.8 7157.8 300.0 350.0
Other current assets 14687.9 15406.8 18075.8 20083.8 21800.7
Tangible fixed assets 12269.7 12492.9 14868.2 18456.0 18162.6
Intang assets (incl gw) 417.0 417.0 417.0 417.0 417.0
Oth non-curr assets 658.2 658.2 1158.2 6658.2 17658.2
Total assets 28469.0 32332.5 41676.9 45914.9 58388.4
Short term debt (2) n/a n/a n/a n/a n/a
Trade & oth current liab 3731.3 2722.5 4280.2 4399.1 5469.5
Long term debt (3) 15252.3 14846.7 5306.0 148.0 2743.8
Oth non-current liab 486.4 486.4 486.4 486.4 486.4
Total liabilities 19470.0 18055.5 10072.6 5033.5 8699.6
Total equity (incl min) 8999.0 14277.0 31604.3 40881.4 49688.8
Total liab & sh equity 28469.0 32332.5 41676.9 45914.9 58388.4
Net debt (2+3-1) 14816.1 11488.9 -1851.7 -152.0 2393.8
Source: Company data, ABN AMRO forecasts year ended Mar

Cash flow statement


Rsm FY06A FY07A FY08F FY09F FY10F
EBITDA 2593.2 6618.5 11794.7 14832.9 14479.0
Change in working capital -374.1 -1727.6 -1111.3 -1889.0 -646.5
Net interest (pd) / rec -1489.3 -1430.3 -1007.6 -272.7 -144.6
Taxes paid 23.3 16.8 -2226.8 -4025.9 -4388.7
Other oper cash items n/a n/a n/a n/a n/a
Cash flow from ops (1) 706.5 3443.8 7449.0 8645.3 9299.2
Capex (2) -1007.2 -1000.0 -4000.0 -10500 -11000
Disposals/(acquisitions) -9.16 1090.6 876.3 -481.3 -1481.3
Other investing cash flow -1191.5 -714.1 3435.6 1361.0 1361.0
Cash flow from invest (3) -2207.9 -623.5 311.8 -9620.3 -11120
Incr / (decr) in equity 6360.3 625.6 0.00 0.00 0.00
Incr / (decr) in debt -4620.1 -405.6 -9540.6 -5158.1 2595.8
Ordinary dividend paid 0.00 -220.4 -814.1 -949.8 -949.8
Preferred dividends (4) 0.00 0.00 0.00 0.00 0.00
Other financing cash flow 168.2 101.6 333.9 155.0 155.0
Cash flow from fin (5) 1908.4 101.2 -10021 -5952.8 1801.0
Forex & disc ops (6) n/a n/a n/a n/a n/a
Inc/(decr) cash (1+3+5+6) 407.0 2921.5 -2260.0 -6927.8 -20.0
Equity FCF (1+2+4) -300.7 2443.8 3449.0 -1854.7 -1700.8
Lines in bold can be derived from the immediately preceding lines. year to Mar
Source: Company data, ABN AMRO forecasts

IN DIA CEMENT S 27 NOVE MBE R 20 07


7
INDIA CEMENTS: PERFORMANCE AND VALUATION

Standard ratios India Cements Ambuja Cements Associated Cement

Performance FY06A FY07A FY08F FY09F FY10F FY07F FY08F FY09F FY07F FY08F FY09F
Sales growth (%) 32.9 33.3 53.1 26.1 11.5 -12.7 13.5 11.0 17.7 12.9 7.24
EBITDA growth (%) 89.9 155.2 78.2 25.8 -2.39 2.08 15.5 5.57 29.5 15.8 -2.83
EBIT growth (%) 212.4 223.7 82.7 25.8 -1.75 8.42 13.2 -1.54 29.1 13.8 -9.45
Normalised EPS growth (%) n/a 1218.3 39.7 19.4 -5.06 1.23 14.1 -2.25 22.0 16.4 -7.82
EBITDA margin (%) 17.0 32.5 37.8 37.7 33.0 39.8 40.5 38.5 30.8 31.6 28.6
EBIT margin (%) 11.8 28.7 34.2 34.1 30.0 35.8 35.7 31.7 25.9 26.1 22.0
Net profit margin (%) 2.23 22.1 24.9 23.6 20.1 27.8 28.0 24.6 19.1 19.7 16.9
Return on avg assets (%) 3.10 16.4 21.9 21.4 17.0 26.4 25.7 21.6 20.5 20.2 16.6
Return on avg equity (%) 5.56 39.1 33.9 25.6 19.4 34.7 31.7 25.8 35.8 32.2 24.2
ROIC (%) 2.62 8.41 14.2 15.5 11.2 29.2 27.2 21.5 30.6 26.2 19.5
ROIC - WACC (%) 0.00 0.00 0.00 0.00 0.00 18.2 16.2 10.5 20.1 15.8 9.09
year to Mar year to Dec year to Dec

Valuation
EV/sales (x) 5.44 3.92 2.13 1.73 1.61 3.66 3.26 2.92 3.09 2.73 2.46
EV/EBITDA (x) 32.1 12.1 5.64 4.60 4.89 9.20 8.04 7.59 10.1 8.65 8.61
EV/EBITDA @ tgt price (x) 38.2 14.5 6.98 5.66 5.98 9.72 8.49 8.02 9.57 8.23 8.18
EV/EBIT (x) 46.1 13.7 6.24 5.09 5.37 10.2 9.12 9.23 12.0 10.5 11.2
EV/invested capital (x) 3.42 3.04 2.20 1.66 1.35 3.78 3.07 2.68 4.24 3.47 3.18
Price/book value (x) 6.95 4.38 2.45 1.89 1.56 4.58 3.72 3.16 5.02 3.94 3.31
Equity FCF yield (%) -0.48 3.91 4.46 -2.40 -2.20 4.10 3.36 6.30 0.39 2.09 5.11
Normalised PE (x) 183.4 13.9 9.95 8.34 8.78 14.7 12.9 13.2 16.0 13.7 14.9
Norm PE @tgt price (x) 225.6 17.1 12.2 10.3 10.8 15.5 13.6 13.9 15.2 13.0 14.1
Dividend yield (%) 0.00 0.35 1.05 1.23 1.23 2.03 2.37 2.50 1.44 1.80 1.89
year to Mar year to Dec year to Dec

Per share data FY06A FY07A FY08F FY09F FY10F Solvency FY06A FY07A FY08F FY09F FY10F
Tot adj dil sh, ave (m) 219.4 219.4 271.4 271.4 271.4 Net debt to equity (%) 164.6 80.5 -5.86 -0.37 4.82
Reported EPS (INR) 1.99 20.5 28.6 34.2 32.5 Net debt to tot ass (%) 52.0 35.5 -4.44 -0.33 4.10
Normalised EPS (INR) 1.55 20.5 28.6 34.2 32.5 Net debt to EBITDA 5.71 1.74 -0.16 -0.01 0.17
Dividend per share (INR) 0.00 1.00 3.00 3.50 3.50 Current ratio (x) 4.05 6.89 5.90 4.63 4.05
Equity FCF per share (INR) -1.37 11.1 12.7 -6.83 -6.27 Operating CF int cov (x) 1.49 3.42 10.6 47.5 95.7
Book value per sh (INR) 41.0 65.1 116.5 150.7 183.1 Dividend cover (x) 0.00 20.4 9.54 9.77 9.27
year to Mar year to Mar
Priced as follows: ICMN.BO - Rs285.00; GACM.BO - Rs148.30; ACC.BO - Rs1129.05
Source: Company data, ABN AMRO forecasts

INDIA CEMENTS: VALUATION METHODOLOGY


Target price calculation of India cements FY09
Average EV/EBITDA valuation of ACC & Ambuja Cement at our target price (x) 8.1

EV/EBITDA valuation for India Cements at a 28% discount to ACC & Ambuja Cement (x) 6.3

EBITDA (Rs m) 14833

Enterprise value (Rs m) 93299


Less: net debt (Rs m) -1852

Value of equity (Rs m) 95151


Number of shares 271
Fair value per share of India Cements (Rs) 350.65
PER on the above estimated fair price (x) 10.2x
Source: ABN AMRO estimates

IN DIA CEMENT S 27 NOVE MBE R 20 07


8
Strategic & competitive overview

India Cements
Company description Buy Price relative to country

India Cements is the largest cement company in south India with a market share of 20%. It 300

operates 7.69mmt of cement capacity across six plants throughout the region. Its subsidiary,
250
Visaka Cements, operates another 1.4mmt unit. India Cements was a two-plant company in 1990
with a capacity of 1.4mmt and has scaled up 6x through a mix of acquisitions and greenfield 200
capacity additions.
150

100

50
Nov Mar Jun Oct Feb May Sep Dec Apr Jul Nov
04 05 05 05 06 06 06 06 07 07 07

Strategic analysis Average SWOT company score: 3 State-wise sales FY07

Strengths 3 Karnataka Tamil


IC looks best positioned to service the south Indian market, with six plants across two states. The 18% Nadu
30%
company has a 20% market share and strong retail brand equity, which enables it to command a Andhra Kerela
15%
price premium in major southern markets. Pradesh
Exports
25% Maharash-
Others 1%
Weaknesses 3 tra
8%
3%

IC is dependent entirely on the south Indian market, hence any demand slowdown or price
weakness in the region affects its entire sales. Source:Company data

Opportunities 3 Market data


IC could increase cement capacity by de-bottlenecking and modernising its wet process unit at Headquarters
Sankari, Tamil Nadu, to a dry process unit. This would involve lower capital cost and, hence, "Dhun Building", 827 Anna Salai, Chennai
600 002, India
improve overall returns.
Website
Threats 2 www.indiacements.co.in
Major capacity creation by any of the large cement companies in south India could impact pricing in Shares in issue
the region. This would impact the outlook for IC. 240.0m
Freefloat
Scoring range is 1-5 (high score is good) 73%
Majority shareholders
Fis and Indian Banks (17%), FIIs (11%),
Indian Mutual Funds (4%)

India

Country view Neutral Country rel to Asia Pacific

The ABN AMRO Indian PMI suggests the economy is still powering ahead despite the global 230

headwinds, thanks to its domestically-oriented economic structure. Moreover inflationary pressure 210
has eased with the recent rate hikes by the RBI. At the sector level, we still like autos (commercial
190
vehicles), software and construction-related stocks as infrastructure spending should be a growth
170
driver in FY08.
150
The country view is set in consultation with the relevant company analyst but is the ultimate responsibility of the Strategy Team.
130

110

90
Nov Mar Jun Oct Feb Jun Sep Dec Apr Aug Nov
04 05 05 05 06 06 06 06 07 07 07

Competitive position Average competitive score: 3+ Broker recommendations


Supplier power 3+ 14
India Cements can leverage its reasonable scale to obtain better terms of trade from suppliers of 12
raw materials and freight operators. Its multi-location plants give it scale to negotiate. 10
8
Barriers to entry 3+
6
Cement is a commodity business, hence entry barriers are low. However, large limestone reserves
4
are not available in IC's key markets of Tamil Nadu and Kerala, hence there is an entry barrier. 2
Customer power 3+ 0
IC commands 20% market share in south India. Its brands have good retail equity, hence it has Buy Hold Sell
some pricing premium. It sells over 75% of its volumes in the retail market.
Source: Bloomberg
Substitute products 3+
There is no substitute product for cement in civil construction. As for imports being a threat to
domestic players, port infrastructure in India prevents large-scale imports.
Rivalry 3+
While the top end of the industry is well consolidated with top five players accounting for 60%
capacity, there are around 30 small players, at times leading to price competition in some markets.
Scoring range 1-5 (high score is good) Plus = getting better Minus = getting worse

IN DIA CEMENT S 27 NOVE MBE R 20 07


9