6 November 2012
2QFY13 Results Update | Sector: Cement
India Cements
BSE SENSEX
S&P CNX
18,763
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,704
ICEM IN
307.2
119/65
6/3/15
30.0
0.5
CMP: INR98
TP: INR127
Buy
* Consolidated
Cement volume, realization largely in-line:
India Cements' (ICEM) cement volume grew 3.5% YoY (5.5% QoQ)
to 2.51m tons (in-line), while realization declined 3.1% YoY (2.4% QoQ) to INR4,355/ton (v/s our estimate of
INR4,374/ton). Revenue grew 3.1% YoY (-6.6% QoQ) to INR11.2b (v/s our estimate of INR11.5b).
Higher energy cost impacts cement EBITDA:
Energy cost inflation of ~8% QoQ impacted performance. EBITDA
margin declined to 18.3% (v/s our estimate of 22%; down 380bp QoQ/YoY). Pure cement EBITDA/ton declined
to INR771 (v/s INR1,029/ton in 1QFY13 and our estimate of INR939/ton). Higher tax rate impacted PAT further
- down 30% YoY and 34% QoQ to INR491m.
Other takeaways:
(a) Demand remains lackluster in the key market of AP owing to major projects failing to
take off, (b) Indonesian captive coal mine has started mining activity, with 15-20,000 ton of coal already
mined (c) Prices in key southern market stable, except in AP; expects to pass-on cost push; Prices in AP have
recovered by INR30-35/bag, after declining by INR60-70/bag in September 2012; expects further recovery in
coming months, (d) Power situation in AP likely to improve only from 1QFY14, which will coincide with
commissioning of its 50MW CPP at its AP plant, (e) Expects part benefit of softening in imported coal prices
to reflect in 3QFY14 and balance in 4QFY14.
Downgrading estimates; maintain Buy:
We downgrade our consolidated EPS estimates for FY13/FY14 by
12%/14% to INR9.8/INR12.7, as we factor in higher energy cost and higher tax. The stock is valued at 7.7x FY14E
EPS (ex-treasury stock), 4.8x FY14E EBITDA and USD67/ton (at 15.1m ton capacity on pro-rata basis). Maintain
Buy
with a target price of INR127 (EV of ~5.5x FY14E EBITDA or USD80/ton).
Jinesh Gandhi
(Jinesh@MotilalOswal.com); +91 22 3982 5416
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +9122 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.
1

India Cements
Cement volume, realization in-line; non-cement revenue lower than
estimated
Cement volume grew just 3.5% YoY (5.5% QoQ) to 2.51m tons (v/s our estimate of
2.5m tons), despite South India volume growing ~9% YoY.
Realization increased 3.1% YoY (declined 2.4% QoQ) to INR4,355/ton (v/s our
estimate of INR4,374/ton). Cement realization (ex-clinker) declined ~INR8/bag
QoQ.
Cement revenue grew 3.1% YoY (declined 6.6% QoQ) to INR11.2b (v/s our estimate
of INR11.5b).
Revenue from IPL was INR52m (v/s INR1.2b in 1QFY13 and our estimate of
INR400m). Ship freight revenue was INR129m (v/s our estimate of INR70m).
YoY de-growth in IPL revenue is attributable to (1) higher recognition in 2QFY13 v/
s 2QFY12 and (2) impact of Challengers trophy.
Trend in cement volume and realization
Source: Company, MOSL
Profitability impacted by energy cost push
Higher energy cost due to power cuts of 12 days/month in Andhra Pradesh and
lower generation at the recently commissioned CPP in Tamil Nadu (0.9m units v/
s 25m units in 1QFY13), resulted in energy cost inflation of ~8% QoQ. Weighted
average power purchase cost for 2QFY13 was INR5.1/unit (v/s INR4.5/unit for
1QFY13).
EBITDA margin declined to 18.3% (v/s our estimate of 22%; -380bp QoQ/YoY) and
EBITDA declined 19% YoY (26% QoQ) to INR2b (v/s our estimate of INR2.5b). This
translates into blended EBITDA/ton of INR816 (v/s our estimate of INR1,008/ton
and INR1,166/ton in 1QFY13). Pure cement EBITDA/ton declined to INR771 (v/s our
estimate of INR939/ton and INR1,029/ton in 1QFY13).
Higher tax rate impacted PAT further (down 30% YoY and 34% QoQ to INR491m).
Interest expense includes forex gain of INR100m (pertains to unhedged loan of
USD60m).
ICEM's 61% subsidiary, Trinetra Cement (SPV for Rajasthan plant) reported EBITDA
of INR155m for 2QFY13 (v/s EBITDA loss of INR60m in 2QFY12).
IPL EBITDA was negative INR40m (v/s +INR328m in 2QFY12) and shipping EBITDA
was INR55m (v/s negative INR20m in 2QFY12).
2
6 November 2012

India Cements
Trend in profitability
Source: Company, MOSL
Key operating indicators *
INR/Ton
2QFY13
2QFY12
Net realization
4,355
4,223
Expenditure
RM Cost
558
613
Staff Cost
321
298
Energy Cost
1,308
1,119
Selling Exp.
1,466
790
Other Exp.
0
630
Total Exp
3,653
3,449
EBITDA
816
1,045
* Expenditure and EBITDA inclusive of other businesses
YoY (%)
3.1
-9.0
7.7
16.9
85.7
-100.0
5.9
-21.9
1QFY12
4,464
QoQ (%)
-2.4
573
-2.6
331
-2.9
1,210
8.1
936
56.6
830
-100.0
3,879
-5.8
1,166
-30.0
Source: Company, MOSL
Guides energy cost pressure over 2HFY13; no immediate plans to expand
capacity
The management indicated that demand remained lackluster in Andhra Pradesh
owing to major projects failing to take off. It is not seeing meaningful recovery in
demand from the Infrastructure segment. However, there is decent growth in
Tamil Nadu, Kerala and Karnataka.
Mining activity has begun at its Indonesian captive coal mine. 15k-2k tons of coal
have already been mined but are yet to be shipped for want of shipload of ~40k
tons. Its initial assessment of cost of imported coal is USD35-40/ton (FOB) v/s
current price of ~USD55/ton for similar quality coal. ICEM expects the cost of mined
coal to decline, as economies of scale come into play.
The company expects energy cost pressure to continue over 2HFY13, owing to
similar power cuts in Andhra Pradesh, though there would be some moderation
due to (1) restoration of efficiency at CCP in Tamil Nadu from 3QFY13, and (2)
potential benefit of softening of imported coal price (current landed coal cost at
USD82-84/ton v/s USD98/ton in 2QFY13).
6 November 2012
3

India Cements
Other takeaways
1.
Cement prices:
Prices in key southern market stable, except in Andhra Pradesh
(AP); expects to pass-on cost push. Prices in AP have recovered by INR30-35/bag
after declining by INR60-70/bag in September 2012; expects further recovery.
2.
Power situation in AP:
Power situation in AP is likely to improve only from 1QFY14,
which will coincide with the commissioning of its 50MW CPP at its AP plant.
3.
Benefit of lower imported coal prices:
Expects part benefit of softening in imported
coal prices to reflect in 3QFY14 and the balance in 4QFY14.
4.
Capex plan:
Has a capex plan of INR5b-5.5b for FY13-14, with no immediate intent
to add capacity.
5.
Debt:
Has net debt of INR30.5b.
Revised forecast (Consol)
(INR m)
Volumes (mt)
Net Sales
EBITDA
Net Profit
EPS (INR)
Rev
10.5
48,890
10,202
2,813
9.8
FY13E
Old
10.7
49,432
10,751
3,199
11.1
Chg (%)
-1.5
-1.1
-5.1
-12.1
-12.1
Rev
11.6
55,752
11,648
3,639
12.7
FY14E
Old
12.0
57,315
12,263
4,243
14.8
Chg (%)
-3.1
-2.7
-5.0
-14.2
-14.2
Source: MOSL
Downgrading estimates
We downgrade our consolidated EPS estimates for FY13/FY14 by 12%/14% to
INR9.8/INR12.7, as we factor in higher energy cost and higher tax.
We assume realization improvement of INR13/bag and INR10/bag in FY13 and
FY14, and expect volume growth to moderate to 3.2%/10% in FY13/FY14.
We partly factor in for savings from commissioning of CPP. However, we are not
factoring in any savings from captive Indonesian coal mine due to lack of clarity on
cost.
Valuation and view
With pick-up in demand in South India and slowdown in the pace of capacity
addition, we expect EBITDA/ton to stabilize at FY12 level of INR900-1,000.
With very high operating leverage and relatively high gearing, ICEM would be one
of the biggest beneficiaries of improvement in cement prices in South India.
We are neither assigning any savings from Indonesian coal mine nor any value to
its IPL franchise 'Chennai Super Kings'.
We believe the entry of two new players (JSW & JPA) in South India would test
existing sanity in pricing and would be the key to stable profitability.
The stock is valued at 7.7x FY14E EPS (ex-treasury stock), 4.8x FY14E EBITDA and
USD67/ton (at capacity of 15.1m tons on pro-rata basis).
Maintain
Buy
with a target price of INR127 (EV of ~5.5x FY14E EBITDA or USD80/
ton).
6 November 2012
4

India Cements
India Cements: an investment profile
Company description
India Cements (ICEM) is among the top five cement
companies in India and a leader in South India. It has
seven plants spread over Tamil Nadu and Andhra
Pradesh, with total capacity of 15.5m tons. It also owns
Chennai Super Kings, a cricket team in Indian Premier
League.
Recent developments
It is acquiring another ship of 52,489DWT for USD16m,
taking total fleet size to 3 ships.
Valuation and view
The stock is valued at 7.7x FY14E EPS (ex-treasury
stock), 4.8x FY14E EBITDA and USD67/ton (at capacity
of 15.1m tons on pro-rata basis).
Maintain
Buy
with a target price of INR127 (EV of
~5.5x FY14E EBITDA or USD80/ton).
Key investment arguments
Regional leader, having strong presence in South
India, with total capacity of 15.5m tons and strong
brand equity in its key markets.
Strategically located plants, with proximity to market
and to the port, providing easy access to
international markets and imported coal.
Initiatives to secure energy requirement and lower
energy cost would drive profitability.
Sector view
We believe we have already witnessed bottom-of-
the-cycle utilization and profitability, and there
should be gradual improvement hereon, given
sustainable demand drivers.
Structural increase in cost base would necessitate
higher cement prices.
Continued revival in cement demand would be the
key catalyst for stock performance.
Key investment risks
Concentrated in South India, which has adverse
demand-supply equilibrium.
High financial gearing would restrict ability to fund
future growth.
Very high dependence on imported coal makes it
vulnerable to volatile imported coal and forex rates.
Comparative valuations
India
Cements
P/E (x)
P/BV (x)
EV/Ton ($)
EV/EBITDA (x)
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
FY13E
FY14E
10.0
7.7
0.7
0.6
71
67
5.7
4.8
Shree
Cement
12.3
10.7
4.1
3.2
155
127
6.7
5.6
UltraTech
Cement
17.2
15.2
3.5
2.9
206
169
10.6
8.8
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
9.8
12.7
FY13
FY14
Consensus
Forecast
10.0
12.1
Variation
(%)
-1.5
4.6
Target price and recommendation
Current
Price (INR)
98
Target
Price (INR)
127
Upside
(%)
30.5
Reco.
Buy
Stock performance (1 year)
Shareholding pattern (%)
Promoter
Domestic Inst
Foreign
Others
6 November 2012
Sep-12
28.2
19.8
32.9
19.1
Jun-12
25.8
19.1
36.4
18.7
Sep-11
25.8
16.7
35.4
22.2
5

India Cements
Financials and Valuation
6 November 2012
6

India Cements
N O T E S
6 November 2012
7

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or 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 information and should not be reproduced or redistributed to any other person in any form.
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. While we would endeavour 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/or its affiliates and/or employees may have interests/positions, financial or otherwise 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.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
India Cements
No
No
No
No
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.
Regional Disclosures (outside India)
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.
For U.K.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.S.
MOSt is not a registered broker-dealer in the United States (U.S.) and, therefore, is not subject to U.S. rules. 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.,
Motilal Oswal has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Any business interaction pursuant to this report will have to be executed
within the provisions of this Chaperoning agreement.
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.
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, Marco
Polo 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.
Motilal Oswal Securities Ltd
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com