1QCY2013 Result Update | Cement

May 7, 2013

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

ACCUMULATE
CMP Target Price
Investment Period
4QCY2012 % chg qoq 3,099 398 12.8 239 (4.6) 23.6 380bp 83.0 1QCY2012 2,860 645 22.5 491 % chg yoy 3.4 (23.7) (591)bp (10.8)

`1,225 `1,361
12 Months

1QCY2013 2,956 492 16.6 438

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 23,004 (2,148) 0.8 1515/1105 23,734 10 19,889 6,044 ACC.BO ACC@IN

During 1QCY2013, ACC posted a weak performance on the operational front with a 4.5% yoy de-growth in grey cement volumes and a 2% yoy improvement on the realization front. EBITDA fell by 23.7% on a yoy basis, with EBITDA/tonne at `766 down by 20.2% on yoy basis. OPM at 16.6%, down 591bp on a yoy basis: ACCs top-line rose by 2.3% yoy to `2,956cr. The companys grey cement division posted a 2.4% yoy decline in top-line as volumes fell by 4.5% yoy and realizations improved only by 2% on a yoy basis. Thus, the yoy growth in topline was on account of the merger of RMC business with the companys standalone operations. OPM at 16.6% was down by 591bp on yoy basis impacted by higher costs. The company wrote back `141cr of income tax provision pertaining to previous year which reduced its tax expense. Thus PAT came in higher than estimates at `438cr, although EBITDA was below estimates at `492cr. Outlook and valuation: We expect ACC to register a 8.2% yoy growth in its top-line over CY2012-14. The bottom-line is expected to post a CAGR of 10.6% over the same period. At current levels, the stock is trading at an EV/tonne of US$105 on CY2014E capacity. We maintain an Accumulate on the stock with a Target Price of `1,361.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 50.3 10.5 20.4 18.9

Abs. (%) Sensex ACC

3m 0.7 (5.8)

1yr 18.2 1.6

3yr 18.6 41.8

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) CY2011 9,439 22.3 1,304 16.4 20.1 69.4 17.7 3.2 19.1 17.7 2.2 129 30 10.7 CY2012 11,129 17.9 1,404 7.7 19.8 74.7 16.4 3.1 19.3 19.0 1.8 115 30 9.2 CY2013E 11,751 5.6 1,449 3.2 19.7 77.1 15.9 2.8 18.6 19.5 1.7 111 30 8.4 CY2014E 13,026 10.9 1,718 18.6 21.3 91.4 13.4 2.5 20.0 22.7 1.4 105 30 6.7

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 | 1QCY2013 Result Update

Exhibit 1: 1QCY2013 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 1QCY13 2,956 2,956 434 14.7 650 22.0 161 5.5 617 20.9 602 20.4 2,464 492 16.6 11 138 103 445 445 8 1.7 438 14.8 4QCY12 3,099 81 3,180 794 25.6 535 17.3 208 6.7 606 19.5 638 20.6 2,782 398 12.8 27 158 66 279 279 40 14.3 239 7.7 83.0 709bp 59.5 (81.2) (11.4) 23.6 380bp (60) (12.2) 55.2 59.5 (5.6) 1.8 (22.5) 21.3 % chg qoq (4.6) (100.0) (7.0) (45.3) 1QCY12 2,860 29 2,889 382 13.4 676 23.6 132 4.6 574 20.1 479 16.7 2,244 645 22.5 32 131 66 549 549 58 10.6 491 17.2 (10.8) (235)bp (18.9) (87.0) 9.8 (23.7) (591)bp (65.8) 5.9 55.5 (18.9) 25.8 7.3 22.2 (4.0) % chg yoy 3.4 (100.0) 2.3 13.6 CY12 11,130 228 11,358 1,784 16.0 2,382 21.4 617 5.5 2,233 20.1 2,146 19.3 9,162 2,196 19.7 115 559 265 1,787 (335.3) 1,452 390 26.9 1,061 9.5 CY11 9,430 231 9,660 1,216 12.9 2,183 23.2 533 5.7 1,894 20.1 1,913 20.3 7,740 1,921 20.4 97 475 192 1,540 1,540 215 14.0 1,325 14.1 (19.9) (452)bp (5.8) 81.4 18.4 14.3 (64)bp 18.3 17.6 38.0 16.0 12.2 17.9 15.7 9.1 % chg yoy 18.0 (1.4) 17.6 46.8

Exhibit 2: Financial performance

3,500 3,099 3,000 2,500 (` cr) 2,000 1,500 1,000 500 0 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 4QCY12 1QCY13 Net Sales Source: Company, Angel Research Reported PAT OPM (RHS) 470 168 155 418 249 438 239 2,150 2,503 2,860 2,778 2,445 2,956 26 24 22 20 18 16 14 12 10 (%)

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ACC | 1QCY2013 Result Update

Exhibit 3: 1QCY2013 Actual vs Angel estimates

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

Actual 2,956 492 16.6 293

Estimates 3,084 565 18.3 333

Variation (%) (4.1) (13.0) (168)bp (12.0)

Performance highlights
Top-line declines on a like for like basis
ACC posted a 3.4% yoy growth in its standalone top-line to `2,956cr. The companys grey cement division posted a 2.4% yoy decline in top-line as volumes fell by 4.5% yoy and realizations improved only by 2% on a yoy basis. Thus, the yoy growth in topline was on account of the merger of RMC business with the companys standalone operations w.e.f 4QCY2012.

OPM down on a yoy basis

OPM stood at 16.6% down 591bp on yoy basis, impacted by increase in raw material and freight costs and also due to low margins for the RMC business. Freight costs rose on account of higher diesel prices and higher railway freight charges

Per tonne analysis

During 1QCY2013, ACCs realization/tonne improved by 2.6% yoy to `4,339. Power & fuel cost/tonne stood flat yoy at `1,012. The freight cost/tonne increased by 12.4% yoy to `960. The operating profit/tonne stood at `766, down 20.2% yoy.

Exhibit 4: Operational performance

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

1QCY13 4QCY12 1QCY12 4,339 1,012 960 938 766 4,302 901 1,020 1,074 670 4,231 1,007 855 713 960

yoy chg (%) 2.6 0.5 12.4 31.7 (20.2)

qoq chg (%) 0.9 12.2 (5.8) (12.6) 14.4

May 7, 2013

ACC | 1QCY2013 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 demand or, if it is more, the excess can economically be supplied to nearby supply-deficit states. Hence, all its capacities can rationally achieve higher utilization. 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.

Higher fuel availability for CPPs leading to lower power and fuel costs
Going ahead, we expect 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 8.2% yoy growth in its top-line over CY2012-14. The bottom-line is expected to post a CAGR of 10.6% over the same period. At current levels, the stock is trading at an EV/tonne of US$105 on CY2014E capacity. We maintain an Accumulate on the stock with a Target Price of `1,361.

Exhibit 5: EV/tonne band

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-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13

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

$80

$110

$140

$170

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ACC | 1QCY2013 Result Update

Exhibit 6: Recommendation summary

Company ACC* Ambuja Cements* India Cements JK Lakshmi Madras Cement Shree Cements Reco Accum Neutral Neutral Neutral Neutral Neutral CMP (`) 1,225 186 88 105 245 4,622 1,927 Tgt. Price (`) 1,361 143 Upside (%) 11.1 36.6 FY2015E P/BV (x) 2.5 2.7 0.7 0.7 1.7 2.9 2.6 FY2015E P/E (x) 13.4 15.3 8.1 4.7 8.7 12.5 16.1 FY2013-15E EPS CAGR 10.6 9.1 24.6 13.9 24.6 15.2 9.3 FY2015E RoE (%) 20.0 18.6 8.8 15.8 21.3 25.4 17.3 EV/tonne^ US $ 116 157 64 36 86 153 188

UltraTech Cements Neutral

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

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).

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ACC | 1QCY2013 Result Update

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 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 7,761 1,503 2,183 526 3,549 1,899 4.8 20.1 475 1,424 0.3 15.1 97 192 12.6 1,519 3.9 1,519 215 14.2 1,304 16.4 13.8 69.4 69.4 16.4 CY12 11,356 17.6 9,154 1,784 2,382 617 4,370 2,203 16.0 19.8 559 1,644 15.5 14.8 115 265 18.2 1,794 18.1 335 1,459 390 26.8 1,404 7.7 12.6 74.7 74.7 7.7 CY13E 11,979 5.5 9,659 1,899 2,426 647 4,687 2,320 5.3 19.7 573 1,746 6.2 14.9 84 295 15.1 1,958 9.1 1,958 509 26.0 1,449 3.2 12.3 77.1 77.1 3.2 CY14E 13,254 10.6 10,482 2,050 2,618 686 5,127 2,772 19.5 21.3 545 2,227 27.5 17.1 79 238 10.0 2,386 21.9 (0) 2,386 668 28.0 1,718 18.6 13.2 91.4 91.4 18.6

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ACC | 1QCY2013 Result Update

Balance sheet (Standalone)

Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves & Surplus Shareholders Funds Deferred Tax Liab Other Long term Liab Long term prov Total liab Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long term loans and adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 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 6,208 366 1,625 448 3,343 1,653 388 1,302 3,273 70 8,717 10,219 4,355 5,864 311 2,554 564 2,634 678 489 1,466 3,325 (692) 8,601 10,484 4,928 5,556 1,046 2,555 564 2,945 484 582 1,878 3,318 (373) 9,347 10,749 5,473 5,276 1,781 2,655 564 3,326 658 693 1,975 3,365 (39) 10,237 6,932 7,355 188 5,828 6,016 567 349 188 6,282 6,469 524 362 188 7,004 7,192 511 518 372 123 8,717 188 7,195 7,383 163 517 381 157 8,601 188 7,966 8,154 138 517 381 157 9,347 188 8,881 9,069 113 517 381 157 10,237 CY09 CY10 CY11 CY12 CY13E CY14E

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ACC | 1QCY2013 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 Others Cash Flow from Operations (Inc)/ Decin 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 CY09 2,294 342 84 575 77 727 2,492 (1,544) (797) 77 (2,264) 85 505 (420) 84 (276) 984 708 CY10 1,461 393 57 407 98 395 1,825 (657) (227) 98 (786) (43) 667 (710) 57 272 708 980 CY11 1,519 475 97 (391) 192 416 258 1,350 (432) 78 192 (162) (13) 609 (622) (107) 672 980 1,653 CY12 1,459 559 115 (294) 265 206 335 1,703 (552) (929) 265 (1,216) (339) 625 (964) 497 (974) 1,653 678 CY13E 1,958 573 84 (513) 295 509 1,298 (1,000) (1) 295 (706) (25) 677 (702) 84 (194) 678 484 CY14E 2,386 545 79 (161) 238 668 1,943 (1,000) (100) 238 (862) (25) 803 (828) 79 174 484 658

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ACC | 1QCY2013 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) (0.5) 27.3 (0.3) (1.0) 25.0 (0.3) (1.2) 14.7 (0.3) (1.1) 14.3 (0.3) (1.1) 20.8 (0.3) (1.0) 28.2 1.3 35 11 193 (57) 1.1 39 9 203 (81) 1.1 38 7 165 (67) 1.1 36 8 132 (47) 1.2 41 10 126 (34) 1.2 43 9 116 (21) 36.3 90.8 29.4 19.9 49.8 17.9 17.7 34.8 19.1 19.0 32.5 19.3 19.5 33.8 18.6 22.7 42.8 20.0 28.1 70.0 1.8 35.1 17.8 76.6 1.6 21.4 14.7 85.8 1.8 22.3 14.5 73.2 1.9 20.4 14.6 74.0 1.9 20.4 16.8 72.0 1.9 22.7 85.5 85.5 103.7 23.0 320.1 59.6 59.6 80.5 30.5 344.2 69.4 69.4 94.7 28.0 382.7 74.7 74.7 86.6 28.7 392.8 77.1 77.1 107.6 31.1 433.9 91.4 91.4 120.4 36.9 482.5 14.3 11.8 3.8 1.9 2.4 7.4 2.8 20.6 15.2 3.6 2.5 2.5 10.9 2.7 17.7 12.9 3.2 2.3 2.2 10.7 2.3 16.4 14.2 3.1 2.3 1.8 9.2 2.3 15.9 11.4 2.8 2.5 1.7 8.4 2.1 13.4 10.2 2.5 3.0 1.4 6.7 1.8 CY09 CY10 CY11 CY12 CY13E CY14E

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ACC | 1QCY2013 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%)

May 7, 2013

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