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RESULTS REVIEW 4QCY16 21 FEB 2017

Ambuja Cement
SELL
INDUSTRY CEMENT Weak despite the beat
CMP (as on 20 Feb 2017) Rs 239
Ambuja Cement (ACEM) reported an EBITDA/t of Rs Highlights of the quarter
Target Price Rs 200 579/t (vs. estimate of Rs 367/t, 5.1% YoY, -3.9% Despite a ~9% decline in volumes, other operating
Nifty 8,879 QoQ). The beat was largely on account of lower P&F expenses remained flat at Rs 5.2 bn. -2.8% YoY, 4.5%
Sensex 28,662 costs vs estimates, (Rs816/t, 0.6 % YoY, -14.6% QoQ QoQ). Cement operating costs remain higher than
KEY STOCK DATA vs 10 % QoQ jump estimated), most likely driven by industry averages (Rs 3,737/t, flat QoQ and YoY) and
use of low- cost clinker inventory (Rs 804 mn due to will continue to drag profitability lower. Other income
Bloomberg/Reuters ACEM IN
inventory changes). Volumes declined ~8.7% YoY continues to decline due to utilisation of proceeds for
No. of Shares (mn) 1,986 (5.0 mTPA), while realisations remained flat (Rs the ACC stake acquisition.
MCap (Rs bn) / ($ mn) 475/7,095 4,316/t, 1.1% YoY, -1.4% QoQ).
6m avg traded value (Rs mn) 637 We remain cautious on sector valuations on the Near-term outlook: Except Gujarat, volumes remain
whole (12-16x 1Yr Fwd EV/EBITDA), and ACEM in weak in most operating regions for ACEM. Pricing,
STOCK PERFORMANCE (%)
particular (14.3/10.6x FY18/19 EV/EBITDA). Further, initially subdued, especially in Gujarat, has recovered in
52 Week high / low Rs 282 / 185 the second half of February this year. We expect
benefits from the merger with ACC continue to be
3M 6M 12M evasive. We have largely retained our earnings March to be better, as the effect of the cash crunch
Absolute (%) 20.4 (13.4) 22.8 estimates, which factor in strong volume and recedes and activity in poll-bound states kicks off.
Relative (%) 10.8 (15.5) 1.9 realisations growth (Refer pg. 3). Maintain SELL with Profitability is likely to remain subdued in the near-
a TP of Rs 200 (ACC/ACEM at 8.0/9.0x CY18 term, and ACEM will continue to lag peers in all
SHAREHOLDING PATTERN (%)
EV/EBITDA). likelihood.
Promoters 63.61
FIs & Local MFs 10.68 Financial Summary (Standalone)
(Rs mn) 4QCY16 4QCY15 YoY (%) 3QCY16 QoQ (%) CY14 CY15 CY16 CY17E CY18E
FPIs 18.53
Net Sales 21,967 23,558 (6.8) 20,043 9.6 99,107 93,683 91,604 1,16,005 1,32,531
Public & Others 7.18
EBITDA 2,947 3,042 (3.1) 2,760 6.8 19,741 15,357 16,825 23,623 29,970
Source : BSE
PAT 1,864 1,657 12.6 2,770 (32.7) 12,849 8,565 12,055 15,279 21,214
Ankur Kulshrestha Diluted EPS (Rs) 0.94 1.08 (13.0) 1.40 (32.7) 8.32 5.52 6.07 7.7 10.7
ankur.kulshrestha@hdfcsec.com P/E (x) 28.6 43.4 29.2 23.0 16.6
+91-22-6171 7346
EV / EBITDA (x) 23.4 30.1 21.1 14.3 10.6
Sarfaraz Singh RoE (%) 13.1 8.4 13.5 19.2 23.3
sarfaraz.singh@hdfcsec.com Source: Company, HDFC sec Inst Research
+91-22-6171 7331 P/E and EV/EBITDA multiples based on standalone nos and Market cap/EV adjusted for embedded ACC stake
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Quarterly Financials Snapshot


(Rs mn) 4QCY16 4QCY15 YoY (%) 3QCY16 QoQ (%)
Lower P&F expenses, despite
Net Sales 21,967 23,558 (6.8) 20,043 9.6
petcoke price increase, was
driven by clinker inventory Power & Fuel 4,153 4,479 (7.3) 4,374 (5.1)
drawdown. Freight Expenses 5,780 6,200 (6.8) 5,376 7.5
RM Costs 1,776 1,928 (7.9) 1,716 3.5
Employee costs 1,486 1,399 1,418
Change in inventory 804 1,343 (405)
Other Operating Expenses 5,021 5,167 (2.8) 4,804 4.5
EBITDA 2,947 3,042 (3.1) 2,760 6.8
Other operating income 344 234 272
Other Income 411 833 2,232
Interest Cost 136 181 192
Depreciation 1,563 1,641 1,595
PBT 2,003 2,287 (12.4) 3,477 (42.4)
Tax 244 1,187 707
RPAT 1,759 1,100 59.9 2,770 (36.5)
E/o (adj for tax) (106) (557) -
APAT 1,864 1,657 12.6 2,770 (32.7)
Source: Company, HDFC sec Inst Research

Per Tonne Analysis


Per tonne data 4QCY16 4QCY15 YoY (%) 3QCY16 QoQ (%)
Volumes declined ~8.7% YoY, Volumes (mT) 5.1 5.5 (7.8) 4.6 11.1
while realisations remained Realisations (Rs/T) 4,316 4,268 1.1 4,376 (1.4)
flat. Cement operating costs P&F costs (Rs/T) 816 811 0.6 955 (14.6)
remain higher than industry Freight costs (Rs/T) 1,136 1,123 1.1 1,174 (3.3)
the average (Rs 3,737/t, flat RM costs (Rs/T) 349 349 (0.1) 375 (6.9)
QoQ and YoY) Employee costs (Rs/T) 292 253 15.2 310 (5.7)
Other cost (Rs/T) 1,144 1,179 (3.0) 961 19.1
Cement EBITDA/T (Rs/T) 579 551 5.1 603 (3.9)
Total costs (Rs/T 3,737 3,717 0.5 3,774 (1.0)
Source: Company, HDFC sec Inst Research

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Peer Valuation
MCap CMP TP EV/EBITDA (x) P/E (x) EV/T (US$)
We look for better entry Company Rating
(Rs bn) (Rs) (Rs) FY18E FY19E FY18E FY19E FY18E FY19E
points UltraTech Cement 1,034.1 3,757 NEU 3,380 16.0 12.8 28.3 22.3 231 219
Shree Cement 540.8 15,522 NEU 13,907 16.2 11.2 34.7 23.1 210 189
Ambuja Cement1 474.0 239 SELL 200 14.3 10.6 23.0 16.6 161 153
ACC1 274.9 1,461 SELL 1,300 12.4 9.0 23.6 16.1 117 114
Ramco Cements 161.1 677 SELL 456 15.2 12.7 26.2 21.1 192 186
Birla Corp 54.7 710 NEU 678 9.5 8.8 22.1 20.1 96 90
Orient Cement 27.2 133 BUY 165 10.3 7.6 32.2 12.4 62 60
Sanghi Industries 14.3 65 BUY 83 5.8 3.9 10.1 6.3 65 57
Note: Prices as of Feb 20, 2017, close. US$: INR = 67
1
December YE

Key Assumptions
CY14 CY15 CY16E CY17E CY18E
Cement volumes (mn T) 22.1 21.8 21.4 23.7 25.1
Realisations (Rs/T) 4,491 4,303 4,289 4,897 5,290
P&F cost/tonne (Rs/T) 1,007 944 858 1,040 1,045
Raw material cost/tonne (Rs/T) 309 332 364 402 432
Freight cost/tonne (Rs/T) 1,105 1,137 1,158 1,208 1,283
EBITDA/tonne 843 658 738 948 1,145
Source: Company, HDFC sec Inst Research

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Continued volume disappointment Realisations turned in flattish


ACEM reported EBITDA/t of Sales volume (mT) YoY % Realisation per tonne (Rs) YoY (%)
mnT
~Rs 600, and continues to lag 7.0 15.0 5,000 Rs/T % 30.0
peers 6.0 10.0
20.0
5.0 4,500
5.0
4.0 10.0
- 4,000
3.0
0.0
(5.0)
2.0
3,500
(10.0) -10.0
1.0
0.0 (15.0) 3,000 -20.0

4QCY09
2QCY10
4QCY10
2QCY11
4QCY11
2QCY12
4QCY12
2QCY13
4QCY13
2QCY14
4QCY14
2QCY15
4QCY15
2QCY16
4QCY16

4QCY09
2QCY10
4QCY10
2QCY11
4QCY11
2QCY12
4QCY12
2QCY13
4QCY13
2QCY14
4QCY14
2QCY15
4QCY15
2QCY16
4QCY16
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

EBITDA/t At Rs ~600/t P&F costs declined surprisingly


EBITDA/tonne YoY (%) P&F Freight RM Emp.cost Oth. Exp.
Rs/T % 100.0 4,000
1,320 80.0 3,500
1,120 60.0 3,000

920 40.0 2,500


20.0 2,000
720
0.0 1,500
520
-20.0
1,000
320 -40.0
500
120 -60.0
-
(80) -80.0
4QCY09
2QCY10
4QCY10
2QCY11
4QCY11
2QCY12
4QCY12
2QCY13
4QCY13
2QCY14
4QCY14
2QCY15
4QCY15
2QCY16
4QCY16

4QCY09
2QCY10
4QCY10
2QCY11
4QCY11
2QCY12
4QCY12
2QCY13
4QCY13
2QCY14
4QCY14
2QCY15
4QCY15
2QCY16
4QCY16
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Income Statement Balance Sheet


Year ending Dec (Rs mn) CY14 CY15 CY16 CY17E CY18E Year ending Dec (Rs mn) CY14 CY15 CY16 CY17E CY18E
Net sales 99,107 93,683 91,604 116,005 132,531 SOURCES OF FUNDS
Growth % 9.2 (5.5) (2.2) 26.6 14.2 Share Capital 3,100 3,104 3,971 3,971 3,971
Material Expenses 46,264 43,624 40,888 53,070 58,523 Reserves 98,083 100,046 186,764 195,539 210,248
Employee Expenses 5,816 5,895 5,937 7,796 8,966 Total Shareholders Funds 101,182 103,149 190,736 199,510 214,219
SG&A Expenses 23,863 24,781 25,176 27,352 30,255 Total Debt 191 227 236 186 136
Other operating expenses 4,554 5,067 3,852 5,335 6,095 Deferred Taxes 5,890 5,649 4,929 4,929 4,929
Operating profits 18,610 14,316 15,751 22,451 28,692 Long-term Provisions & Others 418 414 532 532 532
Operating Profit Margin (%) 18.8 15.3 17.2 19.4 21.6 TOTAL SOURCES OF FUNDS 107,681 109,439 196,433 205,157 219,816
Other operating income 1,132 1,041 1,074 1,172 1,278 APPLICATION OF FUNDS
EBITDA 19,741 15,357 16,825 23,623 29,970 Net Block 62,271 58,160 54,515 51,011 47,382
EBITDA % 19.9 16.4 18.4 20.4 22.6 CWIP 6,902 6,902 8,473 8,973 9,473
EBITDA Growth % 15.1 (22.2) 9.6 40.4 26.9 Investments 1,057 1,069 118,447 118,447 118,447
Depreciation 5,095 6,257 6,145 6,004 6,129 LT Loans and Advances 8,826 10,003 10,019 10,019 10,019
EBIT 14,646 9,101 10,680 17,619 23,841 Total Non-current Assets 79,056 76,133 191,453 188,449 185,320
Other Income (including EO Inventories 8,884 8,955 9,375 13,348 14,649
3,832 3,472 3,406 4,923 7,179
items) Debtors 2,280 2,864 3,001 3,149 2,614
Interest 645 918 715 715 715 Other Current Assets 3,686 4,141 3,934 3,934 3,934
PBT 17,834 11,654 13,372 21,827 30,306 Cash & Equivalents 45,251 49,676 24,779 36,847 52,658
Tax 2,871 3,647 3,672 6,548 9,092 Total Current Assets 60,101 65,635 41,090 57,278 73,855
RPAT 14,963 8,008 9,699 15,279 21,214 Creditors 6,185 6,798 8,970 13,430 12,304
EO (Loss) / Profit (Net Of Tax) 2,115 (557) (2,356) - - Other Current Liabilities & Provns 25,291 25,462 27,139 27,139 27,139
APAT 12,849 8,565 12,055 15,279 21,214 Total Current Liabilities 31,476 32,260 36,109 40,569 39,443
APAT Growth (%) 26.5 (33.3) 40.8 26.7 38.8 Net Current Assets 28,625 33,375 4,981 16,709 34,411
Adjusted EPS (Rs.) 8.3 5.5 6.1 7.7 10.7 TOTAL APPLICATION OF FUNDS 107,681 109,439 196,433 205,157 219,816
EPS Growth (%) 29.7 (33.6) 10.0 26.7 38.8 Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research, Standalone numbers displayed

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Cash Flow Key Ratios


Year ending Dec (Rs mn) CY14 CY15 CY16 CY17E CY18E CY14 CY15 CY16 CY17E CY18E
Reported PBT 17,834 11,654 13,372 21,827 30,306 PROFITABILITY (%)
Non-operating & EO items (4,717) (4,754) (7,557) (6,094) (8,458) EBITDA Margin 19.9 16.4 18.4 20.4 22.6
Interest expenses 645 918 715 715 715 RoE 13.1 8.4 13.5 19.2 23.3
Depreciation 5,095 6,257 6,145 6,004 6,129 Core RoCE 17.5 10.1 13.4 23.6 33.9
Working Capital Change 966 (2,379) 3,480 340 (1,891) RoCE 13.5 8.4 11.4 19.8 23.8
Tax paid (2,871) (3,647) (3,672) (6,548) (9,092) EFFICIENCY
OPERATING CASH FLOW ( a ) 16,952 8,049 12,483 16,243 17,709 Tax Rate (%) 28.0 31.3 27.5 30.0 30.0
Capex (7,316) (2,145) (4,071) (3,000) (3,000) Asset Turnover (x) 1.1 1.0 0.6 0.6 0.6
Free cash flow (FCF) 9,635 5,904 8,412 13,243 14,709 Inventory (days) 34 35 37 36 39
Investments (12) (12) (117,378) - - Debtors (days) 8 10 12 10 8
Non-operating Income 4,964 4,513 6,837 6,094 8,458 Payables (days) 29 25 31 35 35
INVESTING CASH FLOW ( b ) (2,364) 2,356 (114,612) 3,094 5,458 Cash Conversion Cycle (days) 13 19 17 10 11
Debt Issuance/(Repaid) 36 9 (50) (50) (136) Debt/EBITDA (x) - - - - -
Interest expenses (645) (918) (715) (715) (715) Net D/E - - - - -
FCFE (2,973) 1,447 (115,377) 2,329 4,607 Interest Coverage 20.6 9.4 14.3 22.1 30.4
Share Capital Issuance 8 4 84,501 - - PER SHARE DATA
Dividend (8,978) (5,084) (6,505) (6,505) (6,505) EPS (Rs/sh) 8.3 5.5 6.1 7.7 10.7
FINANCING CASH FLOW ( c ) (9,579) (5,988) 77,232 (7,269) (7,355) CEPS (Rs/sh) 13.1 9.2 8.0 10.7 13.8
NET CASH FLOW (a+b+c) 5,009 4,417 (24,897) 12,068 15,811 DPS (Rs/sh) 5.0 2.8 2.8 2.8 2.8
EO Items/Others BV (Rs/sh) 65.9 66.5 96.1 100.5 107.9
Closing Cash & Equivalents 45,259 49,668 24,779 36,847 52,658 VALUATION
Source: Company, HDFC sec Inst Research P/E 28.6 43.4 29.2 23.0 16.6
P/BV 3.6 3.6 2.5 2.4 2.2
EV/EBITDA 23.4 30.1 21.1 14.3 10.6
OCF/EV (%) 3.2% 1.5% 2.4% 3.1% 3.4%
FCF/EV (%) 1.8% 1.1% 1.6% 2.5% 2.8%
FCFE/Market Cap (%) 1.3% 1.4% (22.7%) 3.1% 3.9%
Dividend Yield (%) 2.1 1.2 1.2 1.2 1.2
Source: Company, HDFC sec Inst Research

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

RECOMMENDATION HISTORY
Date CMP Reco Target
Ambuja Cements TP
11-Feb-16 196 NEU 190
290 8-Apr-16 226 SELL 190
270
2-May-16 221 SELL 190
27-Jul-16 270 SELL 200
250
7-Oct-16 253 SELL 213
230 4-Nov-16 243 SELL 213
210 10-Jan-17 211 SELL 200
190 21-Feb-17 239 SELL 200
170
Rating Definitions
150
Dec-16 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Oct-16
Aug-16
Apr-16

Nov-16

Jan-17
Feb-16

Sep-16

Feb-17
May-16

Jun-16

Jul-16
Mar-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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AMBUJA CEMENT : RESULTS REVIEW 4QCY16

Disclosure:
We, Ankur Kulshrestha, PGDBM & Sarfaraz Singh, PGDM authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or
view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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Institutional Equities
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Board : +91-22-6171 7330 www.hdfcsec.com

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