Sector Update | 27 February 2019
Cement
Cement
Please refer to our report
Constant capacity addition to keep cement utilization under check
…however, clinker utilization to improve substantially
Cement utilization to reach 70%, while clinker utilization to improve to 80%
by FY21
The Indian cement industry should witness a capacity addition of ~77mt over
FY19-21E— translating to a capacity addition of ~26mt each year and registering a
6% CAGR over FY19-21E. But, total clinker addition during the same period is
pegged at just 34mt. As a result, cement utilization is expected to increase 5.5pp
to 70%, while clinker utilization should increase 9.4pp to 80% over FY18-21E.
In the recent limestone bids, ~2,330mt of limestone reserves were auctioned
since 2016; of this, 34% reserves are in the western region. The northern and
the eastern regions each comprised 28-29% of the reserves auctioned.
Apart from the 77mt of additional capacities, dormant plants like Kalyanpur and
Murli should also come on stream over FY19-21. The recent ramp-up of Binani’s
assets and its brownfield capacity augmentation will also be a key monitorable.
Northern region to witness maximum utilization improvement
The eastern region should witness maximum amount of capacity addition, to the
extent of 26mt over FY18-21, followed by the southern region witnessing an
addition of 20mt. The northern region seems to be better placed and should
witness capacity addition of only 6mt over the period as a result of which
cement utilization should improve 14pp to 84%.
~34mt of clinker capacity is expected to get added over FY19-21. The western
region is expected to witness the least clinker addition, followed by the eastern
region. Highest amount of clinker addition is expected in South India.
Increase in low cost brownfield expansion to lead to healthy return ratios
The post-tax ROCE for the top-5 players has decreased from 10% in the 1990’s
to 7% currently as replacement costs increased from USD65/t to USD100/t.
Our analysis suggests that ~66% of the capacity put up over FY15-18 was in the
form of high-cost greenfield expansion (typically entails 45% higher capex and
generates lower ROCE).
We expect ~47% of the entire capacity addition over the next three years to be
in brownfield (constitutes 34% of the capacity added over FY15-18). In order to
achieve a post-tax ROCE of 12%, with replacement cost at INR7,800/t for
greenfield and INR4,300 for brownfield, the required EBITDA/t should be
~INR2,159/t and INR1,187/t, respectively.
Garnering market share remains a priority
The Holcim group — which had been a laggard in capacity addition, has now
started focusing on growth, as is evident from its recent capacity expansion
plan.
Pradnya Ganar - Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 6129 1537
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
27 February 2019
Investors are advised to refer through important disclosures made at the last page of the Research Report.
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 Motilal Oswal Financial Services
Cement
India Cements and Sagar Cement’s expansion plans to venture into Central India
shows that players are diversifying their presence in other regions.
Dalmia has continued its endeavor to become a pan-India player. After its failure
to acquire the insolvent Binani Cement, Dalmia has secured mining rights near
Chittorgarh; it is also contemplating building a 4mt plant there.
Balance sheet constraint for midcaps may result in slippages in capacity
addition
We analyzed the balance sheet strength of our coverage companies to
understand their ability to incur large capex over the next 2-3 years.
Net debt to EBITDA for mid cap cement companies is higher than 3.0x on FY19
financials. Thus, midcap cement companies might face limitations in committing
capex due to cash flow constraints.
We believe there will be slippages in the expansion plans of Orient Cement and
India Cement.
Valuation and View
We prefer companies with higher exposure to the northern region, as the North is
pegged to witness the maximum improvement in capacity utilization. Our top picks
to play the North theme are SRCM and JKCE. We also like ACC, which is on a growth
capex mode and should witness improvement in profitability.
Key beneficiaries:
ACC:
The company is planning to add 6mt of capacity at a total capex of INR30b
(~USD71/t), which will come on stream over the next three years. This will be
funded by internal accruals and help the company to protect its market share in the
central and eastern regions. ACC’s profitability gap with peers has narrowed
significantly over the last few quarters, led by higher proportion of (a) premium
sales, and (b) sales from its new cost-efficient units of Jamul and Sindri. The
company has also done well to manage costs, driven by higher proportion of linkage
coal, lower lead distance and route optimization. Besides this, ACC is trying to
rationalize fixed costs. The stock trades attractively at 6.1x FY21 EV/EBITDA. With
growth concerns being addressed, the valuation discount of over 40% to large caps
on EV/ton and EV/EBITDA should narrow substantially. We value ACC at 9x CY20E
EV/EBITDA to arrive at a target price of INR1,838.
Shree Cement (SRCM):
The company is increasing its domestic capacity by ~22%
over FY18-21 at an estimated capital cost of USD25/t. SRCM’s relatively low cost of
production compared to peers has resulted in healthy margins and return ratios. As
a result, it warrants premium valuations, in our view. We expect SRCM to deliver a
better-than-industry performance due to (a) capacity ramp-up over FY19-21, and (b)
a favorable market mix, with higher exposure to the northern markets (~70%),
where prices are expected to be healthy. We value SRCM at 15x FY21 EV/EBITDA
and arrive at a target price of INR20,221.
JK Cement:
JKCE is strategically placed to benefit from the expected price
improvement in the North due to limited supply addition. Incrementally, the grey
cement division should see marked improvement in profitability due to higher
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Cement
proportion of volumes from new efficient units. The white cement business has
gained meaningful scale and deserves premium valuations, given raw material
scarcity and JKCE’s 40-45% share in the domestic white cement market. We value
the white cement segment at an EV/EBITDA of 10x FY21E and the grey cement
business at an EV/EBITDA of 8x (FY21E) to arrive at a target price of INR825.
Exhibit 1: Cement: Valuation summary
CMP
ACC
ACEM
UTCEM
SRCM
BCORP
ICEM
JKCE
JKLC
MCEM
ORCMNT
PRISM
SNGI
1,376
210
3,710
16,546
466
71
708
314
648
71
74
54
ROE (%)
FY19E
10.8
6.1
7.9
14.3
4.6
1.1
12.8
4.9
11.0
-0.8
12.6
2.5
FY20E
13.3
6.3
9.5
15.6
8.3
2.8
13.0
8.4
12.3
6.0
14.2
3.3
FY21E
14.4
7.0
10.6
17.1
10.9
4.1
12.8
12.6
14.1
10.7
14.2
3.3
FY19E
24.0
23.2
48.0
43.4
18.2
44.7
20.6
50.7
32.8
-179.9
27.4
32.3
PE (x)
FY20E
17.6
21.4
35.3
35.5
9.6
17.9
18.3
27.9
26.5
23.7
21.8
24.1
FY21E
14.4
18.9
26.8
28.0
6.7
12.0
16.8
16.9
20.6
12.3
19.3
23.5
EV/EBITDA (x)
FY19E
10.5
13.2
18.2
18.7
7.7
9.2
7.8
11.3
16.0
11.6
9.1
13.7
FY20E
7.8
11.8
15.0
14.5
6.1
7.5
9.0
8.7
14.0
8.5
8.4
13.3
6.1
10.3
12.4
11.6
5.0
6.7
7.6
6.6
10.8
6.0
8.0
8.2
93
117
169
192
60
51
72
54
126
46
50
46
EV/Ton (USD)
FY21E FY19E
FY20E
84
117
155
164
61
50
69
51
114
41
47
45
FY21E
76
120
145
149
59
50
66
46
109
31
46
45
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 Motilal Oswal Financial Services
Cement
Expect cement utilization to improve to 70% and clinker utilization to
improve to 80% by FY21
The Indian cement industry should witness ~77mt of capacity addition over
FY19-21E. This translates into ~26mt of capacity addition each year registering a
6% CAGR over FY19-21E. Total clinker addition over the next three years is
pegged at only 34mt. As a result, while cement utilization is expected to
increase by 5.5pp to 70%, clinker utilization is expected to increase 9.4pp to 80%
over FY18-21E.
Exhibit 3: …clinker utilization is expected to improve by
9.4pp over FY18-21E…
All India clinker capacity (mt)
78%
utilization (%)
80%
Exhibit 2: While cement utilization is expected to improve
by 5.5pp over FY18-21E…
All india cement capacity (mt)
68%
64%
69%
utilization (%)
70%
76%
71%
459
FY18
475
FY19E
508
FY20E
536
FY21E
307
FY18
313
FY19E
327
FY20E
341
FY21E
Source: MOSL, Company
Source: MOSL, Company
Recent limestone bids hint towards maximum capacity addition in the West
We analyzed the recent limestone bids since 2016. Reserves worth 2,330mt
were auctioned, of which 34% are in the western region. ~28% of the reserves
auctioned fell in the eastern and northern region.
Assuming an average reserve life of 30 years, 2,330mt of reserves can result in
55mt of annual capacity.
Exhibit 4: Region-wise split of reserves auctioned
% of Total Reserves
Central
East
North
South
West
6%
29%
Source: MOSL, Company
3%
34%
28%
According to the MMDR, each and every mine granted by way of LOI (Letter of
Intent)/mining lease shall come into production within 5/3 years. Thus, we
expect mines allocated in 2016 to come up with capacities before FY21. Of
these, Penna, Shree, DBEL have already announced expansion.
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Exhibit 5: Capacities auctioned in 2016 should come on stream by 2021
States
Andhra Pradesh
Chattisgarh
Chattisgarh
Jharkhand
Jharkhand
Orissa
Rajasthan
Name of the block
Gudipadu limestone block
Kesla, Raipur
Karhi Chandi, Balodabazar- Bhatapara
Harihaspura Block I, Ramgarh
Harihaspura Block II, Ramgarh
Kottameta , Malkangiri
Limestone block- 3B1-(b) n/v Deh
of tehsil JayalDistrict Nagaur
Prefered
Bidder
Penna cements
Century cement
Shree cement
Burnpur Cement
Burnpur Cement
Dalmia Bharat
Emami cement
Area
(Ha)
41
108
242
180
379
801
247
Reserves
(mt)
27
67
155
0.42
0.67
99
169
E auction
date
08.06.16
19.02.16
18.02.16
12.02.16
12.02.16
27.12.16
22.09.16
Source: MOSL, Company
Apart from the 77mt of additional capacities, certain dormant capacities like
Kalyanpur and Murli should also come on stream over FY19-21. The recent
ramp-up of Binani’s assets and its subsequent brownfield expansion will also be
a key monitorable. Binani’s assets operated at a utilization of 55% in 3QFY19.
The ramp-up of the 6.25mt capacity from 55% to 75% would result in 1.25mt of
additional capacity. Among other defunct capacities are CCI’s assets worth
2.5mt, which can be sold to other private players.
Exhibit 6: Non-operational capacities
Region
East
North
North
Central
South
East
West
South
East
West
Plant
Burnpur Cement, Jharkhand
CCI Delhi (G)
CCI Bhatinda, (G), punjab
Neemuch, Madhya Pradesh
Kurkunta, Karnataka
Akaltara, Chattisgarh
Mandhar, Maharashtra
Kistna, Andhra Pradesh
Kalyanpur Cement, Bihar
Murli Cement, Maharshtra
Total
IU/GU
IU
GU
GU
IU
IU
IU
IU
IU
IU
IU
Company
Burnpur Cement
CCI
CCI
CCI
CCI
CCI
CCI
HMP Cmts. Ltd.
Kalyanpur Cement
Murli Cement
Capacity (mt)
0.5
0.5
0.5
0.4
0.2
0.4
0.4
0.2
1.0
3.0
7.1
Source: MOSL, Company
North likely to witness least amount of capacity addition
We expect the northern region to witness capacity addition of ~6.3mt over
FY19-21E. Wonder Cement is expected to put up a capacity of 2.5mt in
Nimbahera. Also, JKCE is putting an integrated unit of 1mt in Mangrol and
another 1mt in Grinding capacity at Nimbahera. Ambuja Cement has also
announced 1.8mt of cement capacity addition at Marwar Mundwa.
The region should, however, witness supply shocks in the following form
1. UTCEM’s program of ramping up Binani’s assets from 6.25mt to 10-11mt
could result in additional capacity in the region. However, we believe this
should happen only after FY21, as UTCEM would first try to increase the
utilization and stabilize operations of its current assets.
2. After its failure to acquire the insolvent Binani Cement, Dalmia Bharat might
decide to put up a new unit in Rajasthan to enable its entry into the North
Indian market. The company has, secured mining rights near Chittorgarh
and is planning to build a 4mtpa plant, in two phases and should come on
stream only after FY21.
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Cement
3. Ambuja’s 3.1mt of clinker capacity can support a cement capacity of ~4.5mt.
While only 1.8mt has been announced, we expect additional 2.5mt of
capacity announcement in the northern or central region.
Assuming demand in the Northern region grew at a CAGR of 8% over FY19-21E,
the region should witness cement utilization improvement from 71% in FY18 to
84% in FY21.
Exhibit 7: North capacity utilization to reach ~84% by FY21
North capacity (mt)
North cement Utilization (%)
84%
81%
76%
71%
107
FY18
107
FY19E
109
FY20E
114
FY21E
Source: Company, MOSL
Central region too likely to see healthy demand improvement
The central region is likely to see capacity addition of 15mt over FY19-21E
translating into a capacity CAGR of 9%.
While UTCEM has already commissioned its Dhar unit of 3.5mt in FY19, the Bara
unit of 4mt is expected to come on stream by FY21. JKCE should commission its
Aligarh unit by FY20-end. FY21 should witness capacity addition by Wonder and
Sagar Cement. Birla Corp is also augmenting its capacity by 1.2mt in Kundanganj,
Uttar Pradesh, which should come on stream by FY21.
ACC’s recently announced capacity addition of ~4.8mt in the central region
should come on stream by FY22.
Assuming demand in the region grows at a CAGR of 8% over FY19-21E,
utilization in the region is expected to increase from 70% in FY18 to 75% in FY21.
Exhibit 8: Central region should witness capacity utilization of ~75% in FY21
Central capacity (mt)
73%
Central cement Utilization (%)
75%
75%
70%
58
FY18
61
FY19E
64
FY20E
72
FY21E
Source: Company, MOSL
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Cement
East should see highest capacity addition
The eastern region is likely to see capacity addition of 26mt translating into a
CAGR of 14% over FY19-21E.
Of the 26mt, 6mt by Dalmia to be added by FY21 (Part of the 8mt capex
program announced by the company for the East).
Shree’s capacity of 5.5mt in Jharkhand and Orissa is expected to come on
stream by FY20 along with Ramco’s Kolaghat and Jajpur Units.
Apart from this, the region should witness addition by other players like JKLC,
Emami, Star, JSW, Orient and Sagar Cement.
The region is also likely to see healthy demand growth (CAGR of 9%) over FY18-
20 on account of low per capita consumption and the government’s increased
thrust on housing/road projects. But, utilizations are expected to remain under
check due to increased capacity addition.
Utilizations in the region should decline from 65% in FY18 to 63% in FY21.
Exhibit 9: East region should witness capacity utilization of 63% in FY21
East capacity (mt)
67%
65%
63%
East cement Utilization (%)
66%
78
FY18
80
FY19E
94
FY20E
104
FY21E
Source: Company, MOSL
West likely to see modest demand growth
The region should witness capacity addition by Sanghi of 4mt in the Kutch region
and by JKCE of 0.7mt at Wanakbori, Gujarat. Moreover, Shree plans to start a
grinding unit of 2.5mt in Pune by FY20-end. With JSW and Wonder Cement also
planning to augment capacity in the West, the region should witness an overall
capacity addition of 10mt over FY19-21.
Demand in the region is expected to grow at 5% CAGR over FY19-21, as healthy
demand from the infrastructure segment should be offset by weak demand
from the urban housing segment.
The utilization in the region is expected to increase from 64% in FY18 to 65% in
FY21.
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Exhibit 10: Utilization to increase to 65% by FY21 in the western region
West capacity (mt)
West cement Utilization (%)
64.6%
64.4%
64.0%
64.3%
70
FY18
73
FY19E
78
FY20E
80
FY21E
Source: MOSL, Company
South likely to see healthy demand growth
The region should witness supply from Ramco, JSW, Chettinad, Penna and
Orient and should result in total capacity addition of ~20mt.
Assuming the region to grow at a CAGR of 8% over FY19-21E, we expect
utilization levels to increase from 57% in FY18 to 63% in FY21.
Exhibit 11: Utilization to increase to 64% by FY21 in southern region
South capacity (mt)
60%
57%
South cement Utilization (%) 63%
61%
146
FY18
153
FY19E
163
FY20E
166
FY21E
Source: MOSL, Company
West likely to see least clinker addition, while south to see the highest
We expect 34mt of clinker addition over FY19-21. The West should witness the
least amount of clinker addition followed by the East. The additional clinker
requirement for the western region will be met by Rajasthan, while for the
eastern region, it will come from Satna cluster.
The South should witness the highest amount of clinker addition — ~30% of the
total clinker addition will be from southern region.
Exhibit 12: Region-wise clinker addition
Central
FY19
FY20
FY21
Total
2.4
0.7
3
6.1
1.8
3
4.8
2.7
5.6
8.3
East
North
South
3.9
6.5
2
12.4
2.3
Source: MOSL, Company
2.3
West
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Cement
Proportion of low cost brownfield capacity expected to increase
The pace of cement capacity addition in India was quite high over FY12-18. Also,
at the time, greenfield capital cost was constantly increasing due to higher
underlying prices of land (partially offset by lower equipment prices).
The post-tax ROCE for the top-5 players decreased from 10% in the 1990’s to 7%
currently as replacement costs increased from USD65/t to USD100/t.
Exhibit 13: With rising capex cost, new capacities’ EBITDA/t to meet cost of capital has increased
Average EBITDA/t (INR/t) for top 5 companies
10%
8%
7%
Capex (USD/t)
ROCE of top 5 companies (%)
417
FY90-99
65
615
FY00-09
80
909
FY09-17
100
Source: MOSL, Company
However, despite the sharp reduction in expected RoCE, capacity expansion
happened at a fairly strong pace.
Our analysis suggests that ~66% of the capacity put up over FY15-18 was in the
form of high-cost greenfield expansion (typically entail 45% higher capex and
generate lower ROCE).
Exhibit 14: Percentage of greenfield and brownfield expansions over the years
Greenfield
45%
31%
29%
30%
Brownfield
46%
50%
43%
55%
69%
71%
70%
54%
50%
57%
FY15
FY16
FY17
FY18
FY19E
FY20E
FY21E
Source: MOSL, Company
Brownfield expansions typically incur capital cost, which is at ~45% discount to
the greenfield expansion. The associated return ratios generated are relatively
healthy than those generated from greenfield expansions.
We expect ~47% of the capacity to be added over the next three years to be
brownfield (brownfield constituted 34% of the capacity added over FY15-18). To
achieve a post-tax ROCE of 12%, with replacement cost of INR7,800/t for
greenfield and INR4,300/t for brownfield, the required EBITDA/t should be
~INR2,159/t and INR1,187/t, respectively.
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Cement
Exhibit 15: EBITDA/t required for incremental greenfield capacities is as high as INR2,159/t
to achieve 12% post-tax ROCE
EBITDA/t (INR/t)
EBITDA at 80% utilization for 1mt capacity (INR mn)
Capex (USD/t)
Capex (INR mn)
Depreciation at 5% of capex (INR mn)
EBIT (INR mn)
Tax at 30%
EBIT*(1-t) (INR mn)
ROCE
2,159
1,727
111
7,800
390
1,337
936
12%
Source: Company
Exhibit 16: EBITDA/t required for incremental brownfield capacities is INR1,187/t to
achieve 12% post-tax ROCE
EBITDA/t (INR/t)
EBITDA at 80% utilization for 1mt capacity (INR mn)
Capex (USD/t)
Capex (INR mn)
Depreciation at 5% of capex (INR mn)
EBIT (INR mn)
Tax at 30%
EBIT*(1-t) (INR mn)
ROCE
1,187
950
61
4300
215
735
514.8
12%
Source: MOSL, Company
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 Motilal Oswal Financial Services
Cement
Garnering market share remains the priority
The rapid increase in company announcements of capacity addition clearly
indicates an intention to maintain/ increase market share. The Holcim group —
a laggard in capacity addition, has now started focusing on growth, as is evident
from its recent capacity expansion plan.
Intention of companies to diversify into new regions is also gaining visibility with
various south-based companies planning to add capacities in central and
northern regions.
India Cements entered into a share-purchase agreement for acquiring the entire
shareholding of Springway Mining Private in a phased manner for a total
consideration of INR1.8b. The company deems the central region fit for future
capacity expansion, given the favorable demand-supply dynamics in the region.
Thus, the company has INR10b capex plan to add capacity of 2.3mt in the
central region. The company will be starting a clinker plant of 1.5mt in Satna and
support grinding units in Satna and Uttar Pradesh of total 2.3mt capacity.
Sagar Cement announced its expansion plan in Central India by acquiring 65%
stake in Satguru Cement Pvt. Ltd to add cement capacity of 1mt in Dhar. It also
plans to set up a 1.5mt capacity in Jajpur, Cuttack, by acquiring the entire
shareholding of Jajpur Cement Pvt. Ltd (JCPL).
Dalmia continues its endeavor to become a pan-India player as after its failure
to acquire the insolvent Binani Cement, Dalmia has secured mining rights near
Chittorgarh and is planning to build a 4mt capacity plant there.
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Cement
Financial leverage might result in certain slippages in capacities
We analyzed the balance sheet strength of our coverage companies to
understand their ability to incur large capex over the next 2-3 years.
Net debt to EBITDA for mid cap cement companies is higher than 3.0x of FY19
financials. Midcap cement companies, thus, might face limitations in committing
capex due to the cash flow constraints.
We believe there should be slippages in the capex plans of heavily levered
companies like India Cement and Orient Cement. After announcing capex in the
central region in 2QFY19, India Cement put the program on hold in 3QFY19,
indicating it would wait for sufficient cash flow to be generated. Also, given the
current balance sheet and profitability of Orient Cement, we expect slippage in
its capex.
Exhibit 17: Net debt/EBITDA for FY19E
5.6
5.1
3.9
3.4
2.9
2.2
Net debt/EBITDA
2.2
2.2
1.7
0.6
-1.2
ORCMNT
ICEM
SNGI
BCORP
JKCE
JKLC
PRISM
DBEL
UTCEM
MCEM
SRCM
-1.8
ACC
-2.6
ACEM
Source: MOSL, Company
Also, the interest coverage ratio is >2 only for the large cap cement companies.
Therefore, we expect slippages in capacities by the midcap companies.
Exhibit 18: Interest coverage ratio for FY19
17.2
16.9
12.8
Interest Coverage Ratio
5.8
3.2
2.2
JKCE
1.9
PRISM
1.7
SNGI
1.5
BCORP
1.3
JKLC
1.2
ICEM
1.0
DBEL
0.9
ORCMNT
ACEM
ACC
MCEM
SRCM
UTCEM
Source: MOSL, Company
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Cement
Exhibit 19: Financial leverage of coverage universe for FY19
6
5
4
3
2
1
0
-1 0
-2
-3
Interest Coverage Ratio
Source: MOSL, Company
2
4
ORCMNT
ICEM
SNGI
BCORP
JKCE
DBEL
UTCEM
JKLC
PRISM
SRCM
6
MCEM
8
ACC10
ACEM
12
Valuation and View
We prefer companies with higher exposure to the northern region, as the North is
pegged to witness the maximum improvement in capacity utilization. Our top picks
to play the North theme are SRCM and JKCE. We also like ACC, which is on a growth
capex mode and should witness improvement in profitability.
(~USD71/t), which will come on stream over the next three years. This will be
funded by internal accruals and help the company to protect its market share in the
central and eastern regions. ACC’s profitability gap with peers has narrowed
significantly over the last few quarters, led by higher proportion of (a) premium
sales, and (b) sales from its new cost-efficient units of Jamul and Sindri. The
company has also done well to manage costs, driven by higher proportion of linkage
coal, lower lead distance and route optimization. Besides this, ACC is trying to
rationalize fixed costs. The stock trades attractively at 6.1x FY21 EV/EBITDA. With
growth concerns being addressed, the valuation discount of over 45% to large caps
on EV/ton and EV/EBITDA should narrow substantially. We value ACC at 9x CY20E
EV/EBITDA to arrive at a target price of INR1,838.
Key beneficiaries:
ACC:
The company is planning to add 6mt of capacity at a total capex of INR30b
Shree Cement (SRCM):
The company is increasing its domestic capacity by ~22%
over FY19-21 at an estimated capital cost of USD25/t. SRCM’s relatively low cost of
production compared to peers has resulted in healthy margins and return ratios. As
a result, it warrants premium valuations, in our view. We expect SRCM to deliver a
better-than-industry performance due to (a) capacity ramp-up over FY19-21, and (b)
a favorable market mix, with higher exposure to the northern markets (~70%),
where prices are expected to be healthy. We value SRCM at 15x FY21 EV/EBITDA
and arrive at a target price of INR20,221.
JK Cement:
JKCE is strategically placed to benefit from the expected price
improvement in the North due to limited supply addition. Incrementally, the grey
cement division should see marked improvement in profitability due to higher
proportion of volumes from new efficient units. The white cement business has
gained meaningful scale and deserves premium valuations, given raw material
scarcity and JKCE’s 40-45% share in the domestic white cement market. We value
the white cement segment at an EV/EBITDA of 10x FY21E and the grey cement
business at an EV/EBITDA of 8x (FY21E) to arrive at a target price of INR825.
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NOTES
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 Motilal Oswal Financial Services
Cement
Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>=15%
SELL
< - 10%
NEUTRAL
< - 10 % to 15%
UNDER REVIEW
Rating may undergo a change
NOT RATED
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within
following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
Disclosures
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
Motilal Oswal Securities Ltd. (MOSL)* is a SEBI Registered Research Analyst having registration no. INH000000412. MOSL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial
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www.motilaloswal.com.
MOSL is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd.
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http://onlinereports.motilaloswal.com/Dormant/documents/List%20of%20Associate%20companies.pdf
MOSL and its associate company(ies), their directors and Research Analyst and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and
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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 associates of MOSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
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A graph of daily closing prices of securities is available at
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Research Analyst views on Subject Company may vary based on Fundamental
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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
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located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
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
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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.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets
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Specific Disclosures
1 MOSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOSL has not received any compensation or other benefits from third party in connection with the research report
10 MOSL has not engaged in market making activity for the subject company
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 Motilal Oswal Financial Services
Cement
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The associates of MOSL may have:
financial interest in the subject company
actual/beneficial ownership of 1% or more securities in the subject company
received compensation/other benefits from the subject company in the past 12 months
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 associates of MOSL even
though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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)
received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOSL also earns DP income from
clients which are not considered in above disclosures.
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.
Terms & Conditions:
This report has been prepared by MOSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and
may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
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The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty,
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report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOSL will not treat recipients as
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Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or
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The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
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time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
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separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980
4263; www.motilaloswal.com. Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080
1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-38281085.
Registration details: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412.
AMFI: ARN 17397. Investment Adviser: INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual
Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd.
is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. *Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate
products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench. The existing registration no(s) of MOSL would be used until receipt of new MOFSL registration numbers.
27 February 2019
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