Sector Update | March 2015
Cement
Please refer to our report
dated 17 February 2016
Price strength coming back in North-Central India
Downside risk to 4QFY16 estimates lower for preferred picks
Cement players (ex-South) took price hikes of INR35-70/bag in the last 30-40 days in
multiple tranches. The highest sequential uptick was in North and Central India.
If prices do not change further in March, we believe there is no major downside risk to
our 4Q price assumptions, especially for our preferred North-Central picks.
Our near-term conviction in our North-Central bets (JKLC, JKCE, PRSC) is intact. UTCEM
remains our preferred pick for the cycle.
Players took price hikes in competitive markets
INR35-70/bag increase in
retail prices in North and
Central markets
Interim price corrections of
~INR25/bag in AP during
early February
After competitive strategy resulting in dismal price trends, cement companies in
the North and Central regions took price hikes in multiple tranches since
February, with the latest increase in the first week of March.
Our channel interactions highlight that over the past 30-40 days, retail prices in
the North and Central regions have increased by INR35-70/bag from the bottom
of January 2016. Prices have increased by INR60/bag in Delhi, INR50/bag in
Jodhpur, INR70/bag in Chandigarh, and INR30-50/bag in West UP and MP
including the INR10-25/bag increase in the first week of March. Dealers in the
North are not offering any discounts.
Trends within the East and West markets have been mixed. In the East, prices
normalized early in February in Patna; recovery in Kolkata was only in the first
week of March, with INR50/bag uptick after similar fall between December and
mid-February.
In the West, prices increased by INR20-25/bag MoM in Gujarat and Mumbai in
February; in South-Maharashtra and Pune, prices increased by INR25-35/bag in
the second half of January and have remained range-bound since. In Pune,
competition from market leaders (tier-I brands) remains strong, keeping billing
prices INR20-25/bag lower.
In the South, there were interim corrections of ~INR25/bag in Andhra Pradesh in
early February, before gradual recovery. Prices are stable in other states.
Exhibit 1: Ex-South India, prices bounced back in the last 30-40 days (INR/bag)
400
350
300
250
200
North
East
West
South
Central
Source: Company, MOSL
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Aashumi Mehta
(Aashumi.Mehta@MotilalOswal.com); +91 22 3010 2397
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Cement
North pricing reached unsustainable lows – recovery was due
Price increase could be a
conscious decision to
protect downside ahead
Based on feedback from companies and channel partners, the gradual acceleration
in demand momentum continues in 4QFY16 in the North and UP markets. Prices in
North and Central India had reached unsustainable lows in January 2016. In our
earlier note
(click
here),
we had highlighted rising stress among North-centric
players in terms of profitability and debt servicing. With demand sustaining in
January-February, price normalization was due. With potential volume game in
March, this price increase could be a conscious decision to the protect downside
ahead. If prices remain at current levels in March, then in 4QFY16, there would be a
price change of (a) +2-3% QoQ (+1-1.5% YoY) in the North, (b) +2% QoQ (-2.5% YoY)
in Central India, (c) 0-0.5% QoQ (-5% YoY) in the East, (d) -0.5% QoQ (-5% YoY) in the
South, and (e) +1-1.5% QoQ (-8% YoY) in the West.
Exhibit 2: Quarterly average pricing trends (INR/bag)
4QFY15
3QFY16
4QFY16E
North-Central India had
maximum sequential uptick
in pricing
250 246 253
North
314 297 297
302
361 344
341
274 277
285 273 278
307 294 292
East
West
South
Central
National
Average
Source: Company, MOSL
No major downside risk to 4Q price assumptions
Going by the pricing trend so far, we believe there is no major downside risk to our
realization assumptions for the MOSL universe in 4QFY16. Our thesis of better price
performance in the North-Central region is holding. We note that any further price
increase from here would lead to upgrade in North-centric players’ realization
assumptions in 4Q. For pan India players, an increase of INR5-6/bag would be
needed in March for our estimates to hold intact. Southern players are lagging a bit.
Exhibit 3: QoQ realization assumption versus actual price trends
QoQ % change (as per current est)
2.2
2.0
1.0
1.0
1.3
1.9
0.6
1.3
1.9
1.4
QoQ % change (pricing trend)
2.0
1.5
1.0
1.4
1.3 0.4
1.6 0.6
0.3
0.4
1.3
North-Central players have
lowest downside risk on
realization assumptions
1.4
1.4
1.7
Source: Company, MOSL
8 March 2016
2

Cement
Exhibit 4: Operating Metrics
Capacity (mt)
ACC
ACEM
UTCEM
SRCM
Large Cap
BCORP
DBEL
ICEM
JKCE
JKLC
MCEM
ORCMNT
PRISM
Mid-caps
Aggregate
FY15
30.7
29.6
62.2
23.5
145.9
9.3
21.9
15.2
11.6
8.3
14.5
5.0
5.6
91.3
237
FY16E
30.7
29.6
66.7
25.5
152.5
9.3
21.9
15.2
11.6
9.3
15.5
8.0
5.6
96.3
249
FY17E
33.2
30.4
66.7
27.1
157.4
9.3
21.9
15.2
11.6
9.3
16.0
8.0
5.6
96.8
254
FY18E
33.2
30.4
66.7
27.1
157.4
9.3
21.9
15.2
11.6
10.3
16.0
8.0
5.6
97.8
255
FY15
24.2
22.1
45.5
16.2
108.0
7.7
9.7
9.9
6.3
5.9
7.7
4.1
5.6
56.8
165
Volume (MT)
FY16E
23.6
21.8
47.6
18.3
111.3
7.9
10.9
9.0
6.8
7.1
7.0
4.1
5.5
58.3
170
FY17E
24.8
22.6
51.2
21.1
119.8
8.3
12.4
9.4
7.4
7.8
7.3
5.2
5.8
63.6
183
FY18E
26.2
24.0
56.3
23.7
130.2
8.9
13.7
10.0
8.1
8.6
7.8
6.1
6.2
69.4
200
FY15
516
840
861
823
774
318
648
774
636
588
809
723
394
620
721
EBITDA (INR/Ton)
FY16E
497
660
898
927
771
286
1,073
860
662
397
1,411
370
465
737
759
FY17E
634
816
1,055
1,003
913
394
1,170
943
814
546
1,472
622
627
858
894
FY18E
874
1,069
1,311
1,225
1,163
568
1,342
1,061
994
810
1,608
903
786
1,038
1,119
Exhibit 5: Financial Metrics
FY15
45.9
8.5
73.4
133.2
22.8
1.1
0.0
17.9
12.7
10.2
9.5
2.0
EPS (INR)
FY16E
FY17E
32.0
45.9
5.5
7.1
75.7
105.1
170.5
310.8
13.6
11.5
4.8
1.8
-2.6
19.6
1.4
-0.4
21.1
38.7
6.8
21.8
6.4
22.1
2.6
3.2
FY18E
75.4
10.9
157.4
473.0
37.8
66.0
10.5
46.3
24.0
27.6
8.7
7.0
FY15
10.7
13.4
11.2
9.3
13.4
6.7
0.3
0.8
7.5
11.4
9.5
21.6
9.8
6.6
RoE (%)
FY16E
FY17E
7.2
10.0
8.2
7.3
10.5
13.2
10.9
17.8
11.4
14.1
4.0
6.0
3.0
8.7
3.2
5.1
1.1
9.2
-2.3
5.9
16.4
16.0
3.0
5.7
-1.8
15.0
5.1
9.9
FY18E
15.9
10.8
17.4
22.6
17.6
10.0
13.4
6.9
17.5
20.4
17.4
17.3
26.8
16.0
FY15
13.4
18.7
14.1
9.4
14.2
7.1
4.5
6.5
7.8
8.7
10.2
16.4
6.3
7.8
RoCE (%)
FY16E
FY17E
9.8
13.4
12.3
13.4
13.1
16.7
11.5
18.1
12.0
15.6
5.0
7.1
8.9
11.1
7.8
8.4
7.4
10.4
4.6
8.8
15.3
16.5
3.8
8.0
7.6
15.5
7.8
10.6
FY18E
20.9
20.4
21.7
26.8
22.2
10.9
14.4
10.0
14.6
16.4
19.6
14.0
22.8
14.9
ACC
Ambuja
Ultratech
Shree Cement
Large Cap
Birla Corp
Dalmia Bharat Ent.
India Cements
JK Cement
JK Lakshmi Cement
Madras Cement
Orient Cement
Prism Cement
Mid-caps
Exhibit 6: Valuation summary
CMP
INR
1,241
201
2,954
11,351
352
714
76
549
295
366
137
74
TP
INR
1,395
233
3,451
12,151
475
933
91
649
362
443
157
82
Upside
(%)
12
16
17
7
35
31
19
18
22
21
15
11
Imp. TP
EV/ton
110
150
190
190
60
90
60
80
80
100
85
80
FY15
27.1
23.6
40.2
85.2
33.9
15.4
632
30.7
23.2
36.0
14.5
37
33.6
PE (x)
FY16E FY17E
38.8
27.0
36.8
28.1
39.0
28.1
66.6
36.5
37.6
27.4
25.9
16.6
62.0
18.5
15.9
11.2
305.2
25.2
-114.4
46.3
18.7
16.6
95.6
52.5
-201.1
23.1
41.7
20.2
FY18E
16.5
18.5
18.8
24.0
18.6
9.3
10.8
7.2
11.8
12.3
13.2
15.8
10.6
11.3
FY15
15.6
14.0
20.7
28.4
19.5
8.3
26.1
7.7
13.6
13.6
16.8
8.7
20.9
13.8
EV/EBITDA (x)
FY16E
FY17E
17.5
13.5
17.8
14.6
19.0
14.4
22.1
17.1
19.0
14.7
8.8
6.2
10.4
8.2
7.4
6.3
13.2
9.5
18.0
11.5
10.6
9.2
27.2
13.2
16.8
9.7
11.4
8.6
FY18E
8.9
9.7
10.0
11.7
10.1
3.6
6.2
5.3
6.5
6.7
7.3
7.3
6.4
6.1
ACC
Ambuja
Ultratech
Shree Cement
LARGE CAP
Birla Corp
Dalmia Bharat Ent.
India Cements
JK Cement
JK Lakshmi Cement
Madras Cement
Orient Cement
Prism Cement
MID CAPS
8 March 2016
3

Cement
NOTES
8 March 2016
4

REPORT GALLERY
SECTOR UPDATES

Disclosures
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its
affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an
Cement
or
offer, invitation
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to
you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment
objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek
professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for
future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some
companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are
seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate investors
on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and
interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt
generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates
may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment
decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest.
MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies
mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an
advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing
whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent
conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company'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 fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various
objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any
and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and
harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources
believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription
service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we
would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt
and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in
this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for
any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation for
products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this
report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee
Companies where there is interest LTD
No
No
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
For U.S.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which
would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a
registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the
absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be
engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by
the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal
Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore,
may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)
pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with
Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any
investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and
services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For Hong Kong:
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
8 March 2016
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
5