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JM Financial Institutional Securities Limited

JM Financial Research is also available on: Bloomberg - JMFR <GO>,

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Cement

The cement sector reported in-line results in 1QFY18, as volumes grew 5.6% YoY, primarily

on capacity expansion. Growth in weighted average realisations was marginally higher than

our estimates at 8% YoY and 7.6% QoQ. EBITDA/t remained flat as realisations growth

offset escalations in power/fuel costs (26% YoY) and freight costs (12% YoY). We expect

2QFY18 to be seasonally mute. However, companies expect demand to pick up in 2HFY18

on a rise in infrastructure and housing demand. Profitability in terms of EBITDA/t is likely to

be under pressure in 2QFY18 on cost escalations (higher petcoke/coal and diesel prices) and

lower operating leverage (reduced utilisations). Dalmia Bharat and JK Lakshmi are our top

picks in the sector.

Volume growth on capacity expansion: Cumulative volumes for cement companies grew

5.6%/-3.8% YoY/QoQ to 50.56MT, primarily on the capacity expansion (Exhibit 1, 2).

Cumulative capacity utilisation during the quarter remained constant YoY at 74%. Data

released by the government indicated a 2.6% YoY decline in cement production during

1QFY18. The market share for the top 14 listed players increased from 60% in 2QFY17 to

69% in 1QFY18. Historically, 2Q has been the weakest quarter (22% of full year volumes

in FY17) for the cement sector owing to a slowdown in construction activity during the

monsoon.

Realisation growth on price hikes; marginal price decline in July: Weighted average

realisations grew 8.1% YoY in 1QFY18, marginally higher than JMFe. Sequentially,

realisations grew 7.6% in line with our expectation of 7.9% growth (Exhibit 5, 6).

Growth was partially due to the increased proportion of value-added products. However,

cement prices declined marginally by 1.2% MoM in July (1% higher YoY); the western

region saw a steep 5% decline MoM as companies factored in GST benefits and reacted

to lower demand in the monsoon. As per JK Lakshmi management, Chattisgarh

government has advised companies to keep cement prices at INR230/bag during 2QFY18.

Companies have supplied at the said rate for about 6 weeks, after which management

has initiated a dialogue with the state and is confident of a resolution soon.

Realisation growth offsets cost escalations; possible margin impact in 2QFY18: EBITDA/t,

at INR 929, was flat YoY in 1QFY18, as realisation growth offset cost escalations (Exhibit

14). Weighted average power/fuel and freight costs grew 26% and 12% YoY,

respectively, in 1QFY18 (Exhibit 9-12). Power and fuel costs were higher on the

petcoke/coal price increase (average petcoke/coal prices rose 77%/50% YoY). Freight

costs grew on an increase in diesel prices (7% higher YoY) and the busy season surcharge

applicable on rail freight. Going forward, Petcoke prices softened in the beginning of

2QFY18, but are still higher by around 23% YoY. The average international coal price is

35% higher YoY, Jul’17-Aug’17. The average diesel price is 5% higher YoY in Jul’17-

Aug’17, while the spot price is 14% higher. In the environment of muted demand and

increasing costs, we expect margins to decline in 2QFY18.

Optimistic outlook on demand recovery in 2HFY18: EBITDA/t in 2QFY18 could be under

pressure on: i) escalations in petcoke/coal prices; ii) increased freight costs on higher

diesel prices; and iii) lower operating leverage on reduced utilisation (low construction

activity due to monsoons). Cement companies are optimistic about demand recovery in

2HFY18 from infrastructure (metro, roads, irrigation and power) and affordable housing.

Expansion projects in pipeline; aggressive limestone mine bids by players: Companies

under our coverage have an expansion of 25MTPA in the pipeline, most of which is slated

to be commissioned in FY19 (18.7MTPA scheduled in FY19). The highest capacity

addition is by Shree Cement (13MTPA) and Ultratech (7.5MTPA). Ambuja is in the process

of setting up a clinker unit of 1.7MTPA in Rajasthan. 1QFY18 saw aggressive bidding for

limestone mines by cement players; Ambuja won the limestone block in Maharashtra at

125% of the mineral value and Dalmia won the limestone block in Chhattisgarh at 96%

of the mineral value.

Abhishek Anand CFA [email protected] | Tel: (91 22) 66303067

Roshan Paunikar [email protected] | (91 22) 66303563

Company CMP (INR) TP (INR) Rating

Ultratech 3,977 4,550 BUY

Shree Cement 17,140 15,800 HOLD

Ambuja 273 255 HOLD

ACC 1,785 1,500 HOLD

Dalmia Bharat 2,555 3,100 BUY

Ramco Cement 662 625 HOLD

JK Lakshmi 414 520 BUY

JK Cement 1,009 1,170 BUY

1QFY18 operations snapshot

1QFY18 4QFY17 1QFY17

%

YoY

%

QoQ

Volume

(MT) 50.6 52.6 47.9 5.6 -3.8

Realn

(INR/t) 4,474 4,157 4,138 8.1 7.6

EBITDA/t (INR/t)

929 721 919 1.1 28.9

22 August 2017 India | Cement | Sector Report

Price hike offsets cost escalation; recovery expected in 2HFY18

Cement 22 August 2017


Volume trends: growth on capacity expansion

The uptick in cement volume continued in 1QFY18, predominantly driven by the

expansion in cement capacity.

Playerwise cement trends (INR/t) Exhibit 1.

Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY Commentary

UltraTech 12.14 11.00 11.47 13.58 12.92 10.88 11.41 13.55 12.90 -4.8 -0.2

Ambuja Cement 5.95 4.89 5.55 5.93 5.83 4.55 5.08 6.09 6.12 0.5 5.0

ACC 6.20 5.61 6.00 6.36 6.12 5.07 5.45 6.60 6.74 2.1 10.1 Volume growth on capacity addition

Shree Cement 4.35 4.19 4.70 5.36 5.17 4.57 4.91 5.93 5.89 -0.7 13.9 Volume growth on capacity addition

India Cement 2.10 2.17 1.94 2.48 2.31 2.40 2.78 2.99 2.71 -9.4 17.3 Trinetra cement volumes included in Standalone

Madras Cement 1.81 1.71 1.63 2.07 2.08 2.03 1.99 2.28 2.15 -5.6 3.6 Growth on higher demand from eastern

markets

JK Lakshmi 1.65 1.75 1.76 2.15 2.12 1.72 1.84 2.29 2.29 -0.2 7.9 Volume growth on capacity addition

JK Cement 1.61 1.59 1.77 1.90 1.63 1.65 1.66 1.86 1.87 0.4 14.7 Low base on account of defunct plant in

1QFY17

Dalmia Bharat (ex

OCL) 1.74 1.77 1.71 2.14 2.41 2.34 2.31 2.75 2.40 -12.7 -0.4

OCL India 1.35 1.08 1.25 1.74 1.35 1.08 1.25 1.80 1.59 -11.7 17.8 Growth on capacity expansion through

debottlenecking

Orient Cement 0.97 1.01 1.06 1.39 1.39 1.17 1.25 1.73 1.40 -19.3 0.6

Heidelberg 1.18 1.06 1.09 1.11 1.22 1.00 1.05 1.21 1.10 -9.1 -9.6

Mangalam cement 0.61 0.56 0.59 0.64 0.61 0.49 0.65 0.69 0.63 -8.7 3.3 Growth on capacity commissioning

Sagar Cements 0.47 0.42 0.31 0.46 0.58 0.51 0.47 0.64 0.64 -0.3 10.9

Birla Corp 1.96 1.96 1.97 2.21 2.17 1.77 1.75 2.15 2.14 -0.4 -1.2

Cumulative

volumes * 44.08 40.75 42.79 49.51 47.89 41.22 43.84 52.56 50.56 -3.8 5.6

%YoY 2.6 4.1 6.0 16.3 8.7 1.1 2.4 6.2 5.6

%QoQ 3.6 -7.5 5.0 15.7 -3.3 -13.9 6.4 19.9 -3.8

Source: Company, JM Financial

Capacity utilisation for the players remained constant at 74% in 1QFY18, indicating a

volume growth on account of the expansion in cement production capacity.

Growth driven by capacity addition Exhibit 2.


The government released its cement production data for Jun’17, reporting a 5.8% YoY

decline; it reported a 2.6% YoY decline during 1QFY18.

Cement volumes as reported by the companies in 1QFY18 (cumulative volumes of top 14

listed players in the sector – capacity share of 64%) indicate volume growth of 5.6%

YoY.

The data released by the government continues to differ from the sales volume reported

by the companies.

61.6 62.1 62.9 63.1

65.166.0

67.268.3 68.6

72%

66%68%

78%74%

62%65%

77%74%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

50

55

60

65

70

75

80

Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17

Total cement capacity (MTPA) Total Capacity Utilisation (%)



Disconnect between cement sales and production data Exhibit 3.DIPP cement industry production data Volumes reported by Companies

Source: Company, JM Financial, Industry

The volume trends indicate increasing market share for organised players. Market share

increased from 60% in Sep’16 to 69% in Jun’17.

Material change in share of listed players in Industry Exhibit 4.

Source: Company, JM Financial, Industry

66.1 67.3

78.475.6

68.266.8

69.2

73.7

1.7 4.5

12.05.7

3.3-0.8

-11.8

-2.6

35

45

55

65

75

85

-75

-65

-55

-45

-35

-25

-15

-5

5

15

Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17

Volume Growth (YoY %)

40.842.8

49.547.9

41.2

43.8

52.650.5

4.1 6.0

16.3

8.6

1.1 2.46.2 5.6

-75

-65

-55

-45

-35

-25

-15

-5

5

15

35

40

45

50

55

60

65

70

Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17

Cumulative volumes (MnT)* %YoY

44.140.8 42.8

49.5 47.9

41.243.8

52.6 50.5

71.6

66.1 67.3

78.475.6

68.2 66.869.2

73.7

62% 62% 64% 63% 63%60%

66%

76%

69%

-30%

-10%

10%

30%

50%

70%

20

30

40

50

60

70

80

90

100

Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17

Listed player sales (MnT) - a All India Production (MnT) - b a/b %



Realisation trends: Price hikes during the quarter

Realisations during the quarter, grew 7.6%/8.1% QoQ/YoY, marginally higher than our

estimates.

In our 4QFY17 review (Robust quarter; multiple headwinds to limit margin expansion) and

cement pricing update (GST: Destocking to impact volumes marginally), we highlighted

the likelihood of EBITDA/t being impacted positively on realisation growth, with cost

escalations likely offsetting the positive impact of realisation growth.

Company-wise realisation trend (INR/t) Exhibit 5.

Jun'15 Sep'15 Dec'15 Mar'16 Jun'16 Sep'16 Dec'16 Mar'17 Jun'17 QoQ YoY

UltraTech 4,204 4,130 4,072 3,930 4,093 4,116 4,071 4,162 4,425 6.3 8.1

Ambuja Cement 4,190 4,285 4,245 4,057 4,336 4,405 4,324 4,160 4,613 10.9 6.4

ACC 4,460 4,530 4,409 4,231 4,356 4,466 4,510 4,402 4,648 5.6 6.7

Shree Cement 3,476 3,648 3,457 3,334 3,855 3,969 3,697 3,771 4,146 9.9 7.5

India Cement 5,757 5,570 5,413 5,239 5,156 5,391 5,103 5,083 5,352 5.3 3.8

Madras Cement 4,938 4,717 4,967 4,636 4,541 4,769 4,682 4,450 4,607 3.5 1.4

JK Lakshmi 3,580 3,690 3,681 3,419 3,486 3,618 3,485 3,370 3,773 12.0 8.2

JK Cement 3,651 3,788 3,580 3,392 3,705 3,642 3,594 3,720 3,991 7.3 7.7

Dalmia Bharat (ex OCL) 5,341 4,979 5,334 5,086 4,495 4,480 4,660 4,890 5,354 9.5 19.1

OCL India 4,567 4,456 4,355 4,430 4,659 5,139 4,918 4,518 4,842 7.2 3.9

Orient Cement 3,589 3,519 3,209 3,143 3,145 3,273 3,632 3,443 4,065 18.1 29.2

Heidelberg 3,660 3,740 3,681 3,571 3,788 3,842 3,693 3,744 3,915 4.6 3.3

Mangalam cement 3,465 3,570 3,579 3,285 3,674 3,906 3,607 3,749 4,032 7.5 9.7

Sagar Cements 4,152 4,346 3,597 3,343 3,434 3,687 4,039 3,661 4,058 10.8 18.2

Birla Corp 3,679 3,642 3,696 3,393 3,846 3,855 3,748 3,899 4,202 7.8 9.3

Average realisations 4,220 4,214 4,132 3,971 4,138 4,239 4,177 4,157 4,474 7.6 8.1

%YoY 0.2 -1.5 -1.0 -8.1 -2.0 0.6 1.1 4.7 8.1

%QoQ -2.3 -0.1 -1.9 -3.9 4.2 2.5 -1.5 -0.5 7.6


Orient cement’s steep 29% YoY rise in realisations took place on account of a larger

proportion of invoicing in FOR terms, which also led to the steep 43% YoY increase in the

company’s freight costs.

Companies with exposure to western and eastern regions of India (Ambuja, Shree, JK

Lakshmi, Dalmia) saw better realisation growth vs. the industry.

Quarterly cement prices across India and region-wise Exhibit 6.

Price hikes helped realisation growth in 1QFY18 West and East witnessed a steep hike in prices in 1QFY18


200

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http://www.jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Cement_sector_4QFY17_review_07Jun2017.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Cementsector_GSTimpact_03jul17.pdf



Cement price trends; marginal softening in July

July’17 witnessed a marginal softening in cement prices (Marginal softening in July MoM;

west impacted the most), which in our view could partially be attributed to passing on the

benefits of GST implementation to consumers.

- Prices in the west saw a steep decline of 5.8% MoM in July

- South saw a 2% MoM increase in cement prices

- Prices in the north remained largely flat MoM

- There was a marginal decline in cement prices in the east

- There was a 2.6% MoM decline in the central region

As per the management of JK Lakshmi, Chattisgarh government limit the cement prices in

the state to INR 230/bag during 2QFY18. Companies have been supplied at the said rate

for about 6 weeks. Management has initiated a dialogue with the government and is

confident of a resolution within a month.

Jul-Sep (2Q) is seasonally a weak quarter for the cement sector, with around 22% of the

whole year’s sales being realised during the quarter.

West witnessed a material price decline Exhibit 7.


Jul-Sep; seasonally weak quarter Exhibit 8.


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r-17

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Rs/

50kg b

ag

Southern Eastern Northern Western Central

1Q (Apr-Jun)26%

2Q (Jul-Sep)

22%3Q (Oct-Dec)

24%

4Q (Jan-Mar)

28%

Quarterwise proportion in cement sales

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Cementsector_pricingupdate_28Jul2017.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Cementsector_pricingupdate_28Jul2017.pdf



Costs: Commodity prices lead cost escalations

Power and fuel costs up 26% YoY

The effect of increased petcoke/coal prices in 1QFY18 is clearly visible. Power/fuel costs

for the quarter increased 26.1%/8.0% YoY/QoQ.

Average international coal prices were nearly 50% higher YoY in 1QFY18, while average

petcoke prices were nearly 77% higher YoY during the same period.

Power and fuel cost trends (INR/t) Exhibit 9.


UltraTech 820 865 838 678 650 722 775 779 857 10.1 31.9

Ambuja Cement 982 994 807 863 802 961 817 885 923 4.3 15.1

ACC 916 1,016 841 817 788 964 889 903 942 4.2 19.4

Shree Cement 632 566 521 479 387 492 533 576 612 6.2 58.0

India Cement 1,123 1,144 1,047 1,045 875 864 983 1,080 1,056 -2.2 20.7

Madras Cement 804 794 709 628 623 591 645 617 782 26.7 25.6

JK Lakshmi 822 750 781 661 620 679 821 734 840 14.4 35.6

JK Cement 986 1,062 907 863 736 790 806 837 849 1.4 15.4

Dalmia Bharat (ex OCL) 821 761 723 610 589 701 787 853 1007 18.2 71.1

OCL India 756 798 709 423 444 578 508 456 510 12.0 14.9

Orient Cement 934 938 970 797 926 1,045 929 915 984 7.5 6.3

Heidelberg 982 1,111 979 1,000 843 1,062 986 964 945 -2.0 12.2

Mangalam cement 988 615 729 622 630 899 1,002 764 975 27.6 54.8

Sagar Cements 929 971 1,086 1,172 1,123 1,379 1,284 1,191 1,284 7.9 14.3

Birla Corp 946 988 992 912 921 971 880 929 1,058 13.9 14.9

Average Power & Fuel/t 871 891 810 732 691 789 793 807 871 8.0 26.1

%YoY -10.3 -12.2 -17.4 -22.2 -20.7 -11.4 -2.2 10.2 26.1

%QoQ -7.5 2.3 -9.0 -9.7 -5.6 14.2 0.5 1.7 8.0


Going forward, we expect the power and fuel costs to remain on the higher side on

account of higher petcoke and coal prices.

The average coal price is 35% higher YoY, Jul’17-Aug’17.

Petcoke prices in Jul’17 at USD89/t were 23% higher YoY. Petcoke on a per-Kcal basis is

still around 15% cheaper than coal.

Petcoke/coal prices Exhibit 10.

Coal prices are firming up Petcoke prices still at elevated levels

Source: Company, JM Financial, Industry, Bloomberg

97

47.27

109.7

30

40

50

60

70

80

90

100

110

120

Aug-1

4

Oct

-14

Dec-

14

Feb-1

5

Apr-

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Jun-1

5

Aug-1

5

Oct

-15

Dec-

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6

Apr-

16

Jun-1

6

Aug-1

6

Oct

-16

Dec-

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Feb-1

7

Apr-

17

Jun-1

7

USD/t

72

7882

8991

96

90

80

87

9295

9289

Jul-

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6

Sep

-16

Oct

-16

Nov-

16

Dec-

16

Jan

-17

Feb-1

7

Mar-

17

Apr-

17

May-

17

Jun-1

7

Jul-

17

Average Petcoke prices (USD/t)



Freight cost up 12% YoY

The average freight cost was higher 11.8%/3.1% YoY/QoQ during 1QFY18.

Freight costs during the quarter were higher on account of a YoY increase in diesel prices

(7% higher YoY) and the busy season surcharge applicable on railway freight.

Freight cost trends (INR/t) Exhibit 11.


UltraTech 1,160 1,100 1,096 1,092 1,087 1,046 1,088 1,123 1,118 -0.4 2.8

Ambuja Cement 883 826 851 870 876 906 888 923 941 1.9 7.5

ACC 1,101 1,000 1,051 1,048 979 1,070 1,108 1,152 1,196 3.9 22.2

Shree Cement 923 829 780 800 852 891 856 1,023 1,068 4.4 25.4

India Cement 1,055 1,017 1,005 946 1,008 1,045 1,006 1,041 1,052 1.1 4.4

Madras Cement 1,010 909 907 896 853 879 891 901 930 3.2 9.0

JK Lakshmi 906 870 911 909 862 914 923 922 937 1.6 8.6

JK Cement 980 984 941 943 902 925 950 921 1,022 10.9 13.4

Dalmia Bharat (ex OCL) 1069 877 875 976 790 801 890 940 1013 7.8 28.2

OCL India 788 866 920 855 941 986 922 848 820 -3.3 -12.9

Orient Cement 796 750 706 657 697 727 911 887 996 12.4 42.9

Heidelberg 567 504 505 511 514 533 538 551 566 2.8 10.2

Mangalam cement 1,089 1,010 1,003 1,062 1,026 1,151 1,081 1,090 1,149 5.4 12.0

Sagar Cements 651 551 562 648 572 751 826 638 805 26.2 40.6

Birla Corp 796 789 778 760 761 785 792 850 898 5.7 18.0

Average Freight costs/t 1002 937 939 941 925 947 967 1004 1035 3.1 11.9

%YoY 6.3 -2.4 -1.6 -3.0 -7.7 1.1 2.9 6.7 11.9

%QoQ 3.4 -6.5 0.3 0.2 -1.7 2.3 2.1 3.9 3.1


We expect freight costs to still rise on account of higher diesel prices YoY in 2QFY18.

- The average diesel price is 5% higher YoY, Jul’17-Aug’17; the diesel spot price is 14%

higher YoY.

Diesel price trends Exhibit 12.

Source: Company, JM Financial, Bloomberg

57.19

44.18

59.02

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Indian Diesel price - Delhi (Rs/l) 3 years min 3 years max



Total Cement Costs up 10% YoY

Power/fuel and freight cost escalations led to higher total costs during 1QFY18. All

companies reported a rise in costs YoY.

Total cost per ton trends (INR/t) Exhibit 13.


UltraTech 3,415 3,442 3,312 3,045 3,131 3,246 3,286 3,340 3,406 2.0 8.8

Ambuja Cement 3,574 3,682 3,697 3,340 3,345 3,798 3,744 3,561 3,612 1.4 8.0

ACC 4,021 4,085 4,065 3,670 3,689 4,036 4,111 3,902 3,920 0.5 6.3

Shree Cement 2,812 2,792 2,586 2,514 2,593 2,668 2,722 2,952 2,988 1.2 15.2

India Cement 4,867 4,574 4,665 4,431 4,309 4,499 4,389 4,441 4,668 5.1 8.3

Madras Cement 3,848 3,496 3,467 3,144 3,208 3,239 3,359 3,298 3,422 3.8 6.7

JK Lakshmi 3,273 3,299 3,296 3,022 2,931 3,072 3,036 3,057 3,246 6.2 10.8

JK Cement 3,420 3,505 3,309 2,882 3,090 3,187 3,139 3,050 3,304 8.3 6.9

Dalmia Bharat (ex OCL) 3,885 3,630 3,945 3,667 3,135 3,275 3,531 3,696 3,889 5.2 24.0

OCL India 3,597 3,634 3,431 3,247 3,321 3,854 3,637 3,278 3,553 8.4 7.0

Orient Cement 2,981 3,158 3,008 2,697 2,854 3,137 3,282 3,007 3,229 7.4 13.1

Heidelberg 3,281 3,287 3,153 2,993 3,133 3,244 3,321 3,165 3,394 7.2 8.3

Mangalam cement 3,530 3,588 3,420 2,822 2,903 3,445 3,290 3,326 3,390 1.9 16.8

Sagar Cements 3,337 3,917 3,207 2,804 2,982 3,167 3,429 3,254 3,392 4.2 13.7

Birla Corp 3,413 3,371 3,441 2,965 3,252 3,459 3,465 3,479 3,757 8.0 15.5

Average Cement costs 3,556 3,557 3,478 3,184 3,218 3,428 3,468 3,436 3,545 3.2 10.1

%YoY 1.8 -2.5 -4.3 -9.8 -9.5 -3.6 -0.3 7.9 10.1

%QoQ 0.8 0.0 -2.2 -8.5 1.1 6.5 1.2 -0.9 3.2


EBITDA/t: realisation growth offsets cost escalations

EBITDA/t marginally higher: Cement EBITDA/t for the industry grew 1% YoY on account

of realisation growth offsetting the power/fuel and freight cost escalations. EBITDA/t was

higher or lower for the players depending on the extent of realisation growth vs. the

extent of cost escalations.

With cement prices under pressure on low demand and the monsoon season, cost

escalations will impact profitability of cement players in 2QFY18.

EBITDA/t trends (INR/t) Exhibit 14.


UltraTech 789 688 760 886 962 870 785 822 1,019 24.0 5.9

Ambuja Cement 615 602 548 718 992 607 580 599 1,002 67.1 1.0

ACC 439 445 344 561 667 430 399 500 727 45.5 9.1

Shree Cement 663 856 871 820 1,262 1,301 975 818 1,157 41.5 -8.3

India Cement 890 996 748 808 847 892 714 642 684 6.5 -19.3

Madras Cement 1,090 1,221 1,500 1,492 1,334 1,529 1,323 1,152 1,185 2.8 -11.2

JK Lakshmi 307 391 385 397 555 546 449 312 527 68.5 -5.1

JK Cement 231 283 271 510 614 455 455 670 686 2.5 11.7

Dalmia Bharat (ex OCL) 1456 1349 1389 1419 1360 1205 1130 1194 1,465 22.7 7.7

OCL India 970 822 924 1,182 1,338 1,285 1,281 1,240 1,289 4.0 -3.7

Orient Cement 608 360 201 446 291 136 349 436 836 91.8 187.3

Heidelberg 378 453 528 578 656 598 373 579 521 -9.9 -20.5

Mangalam cement -65 -18 159 463 771 461 317 423 642 51.9 -16.7

Sagar Cements 815 429 390 539 452 520 609 407 666 63.9 47.4

Birla Corp 266 271 255 428 594 396 283 420 446 6.1 -24.9

Average EBITDA/t 665 657 654 788 919 811 709 721 929 28.9 1.1

%YoY -7.7 4.5 21.8 -0.5 38.3 23.5 8.4 -8.5 1.1

%QoQ -16.1 -1.1 -0.5 20.4 16.7 -11.7 -12.6 1.6 28.9




Management guidance:

Management guidance Exhibit 15.Company Industry volume guidance Prices Costs Company commentary

Ultratech

No cuts have been taken apart from

passing on GST-related benefits to

consumers

Domestic players have reduced

petcoke prices; spot prices of petcoke

at USD87-90/t

2QFY18 is expected to be

challenging

ACC

The company expects better volumes on

the prospects of a normal monsoon,

smart cities, urban infrastructure,

housing projects and GST

implementation

DBEL Expects 4%-6% demand growth in the

region of operations

Prices will be stable as incremental

capacity would be absorbed by demand

Petcoke prices would remain at USD80

levels; slag prices have been high on

lower stock

Dalmia to outperform the

industry

India Cement

2QFY18 is expected to be better than

1QFY18; management expects a growth

of 6%-7% for full-year FY18 in its

region of operations

Prices are stable in 2QFY18

Expects a better 2QFY18 vs.

1QFY18

JK Lakshmi cement

Guided for growth of 5%-6% in

2HFY18; management expects east to

grow 8% and north to grow 5%-6%

after the monsoons

Expects power/fuel prices to be stable

in 2QFY18; do not foresee a further

increase in petcoke prices

Company is in the process of

commissioning 7.5MW of WHR

and 20MW of TPP, which is

expected to lower costs

JK Cement

Prices are lower than June exit prices

Expects volume growth of 7%-

8% on a low base

Star Cement Expects demand to pick up in 2HFY18;

full year growth at 10%-12% Stable

Uses coal; do not foresee any change

in coal prices Company to do better in 2HFY18

Shree Cement

Expects 12% growth in FY18


Capacity expansion in the pipeline

Most of the capacities currently in the pipeline are slated to be commissioned after

1HFY18, with a major portion of the pipeline scheduled to come online in FY19.

Expansion announced Exhibit 16.

Company Location State Region Capacity

(MTPA)

Commissioning

date

Ultratech Cement Dhar Madhya Pradesh Central 3.50 4QFY19

Ultratech Cement Bara Uttar Pradesh Central 4.00 FY19

Shree Cement Aurangabad Bihar East 0.90 2QFY18

Shree Cement Aurangabad Bihar East 5.50 4QFY18

Shree Cement Sriganganagar Rajasthan North 3.60 1QFY19

Shree Cement Gulbarga Karnataka South 3.00 3QFY19

Ramco Cement Vizag AP South 1.10 FY19

Ramco Cement Kolaghat WB East 1.10 FY19

Ramco Cement Haridaspur Odisha East 0.90 FY19

JK Lakshmi Durg Chattisgarh East 0.90 FY18

Ambuja Cement Marwar Mudhwa Rajasthan North 1.7*

Total 25.1*

Source: Company, JM Financial | * clinker capacity not included in the total cement capacity

Successful Limestone auctions during the quarter

The quarter witnessed aggressive limestone mine bidding

- Ambuja won the limestone block in Maharashtra for a record bid of 125% of the

mineral value for the limestone block.

- Prior to that Dalmia Bharat won the limestone block in Chhattisgarh, paying 96.15%

of the mineral value for the block. Management indicated that the production of slag

cement would help contain cost escalations from limestone usage.



Successful limestone auctions Exhibit 17.

Company Name of the mine Location Reserves (MT)

Winning bid (%

of the mineral

extracted)

Limestone

auction cost per

tonne of

cement(INR/t) *

Winning Year

Ambuja Cement Nandgaon ekodi, Maharashtra Maharashtra 42.00 125.05% 700.6 Jun-17

Dalmia Bharat Kesla II Raipur, Chattisgarh Chattisgarh 217.00 96.15% 412.1** May-17

Shree Cement Mudhvay Sub-block B, Lakhpat Taluka, Kachchh District, Gujarat Gujarat 301.50 20.00% 187.1 May-17

Adani Cementation Ltd Mudhvay Sub-block C, Lakhpat Taluka, Kachchh District, Gujarat Gujarat 324.79 30.05% 236.3 May-17

JSW cement Mudhvay Sub-block D, Lakhpat Taluka, Kachchh District, Gujarat Gujarat 125.00 35.00% 260.5 May-17

Source: Company, JM Financial, Industry | * assuming limestone value of Rs490/t and limestone to cement ratio of 0.95x; ** slag cement limestone to cement ratio of 0.7x

Other Updates

Ultratech

Ultratech completed the acquisition of Jaiprakash assets on 29June’17. The plants are

running at 15% utilisation currently (INR 400/t EBITDA). Additionally, with the acquisition,

Ultratech’s capacity share in the central region has become 30%.

The company’s net debt after acquisition stands at INR 128.7bn (vs. INR 24.2bn net cash)

and net debt-to-EBITDA stands at 1.87x.

ACC

ACC announced an interim dividend of INR 11/share.

During 1QFY18, the company initiated a study to evaluate a potential merger with

Ambuja, for which a special committee has been constituted with majority independent

directors.

Ambuja

ACEM is setting up a 1.7MTPA Greenfield clinker plant at Marwar Mundwa in Rajasthan.

Land acquisition for the project is at an advanced stage.

The company won the bid for a limestone mine at Nandgaon Ekodi, in Chandrapur,

Maharashtra with 42.1 MT of reserves. The winning bid was 125.05% of the value of

mineral dispatched. ACEM has a 4.5MTPA integrated plant in Chandrapur.

The Board has recommended an interim dividend of INR1.6/share.

Dalmia Bharat

The company reduced its net debt from INR 52.3bn as on 31Mar’17 to INR 46bn as on

30Jun’17 (gross debt reduced from INR 80.6bn to INR 77.3bn during the period). The

INR6.4bn reduction in net debt during 1QFY18 was primarily on the receipt of INR 5.9bn

from KKR. With this, the company’s net debt-to-EBITDA stands reduced to 2.4x from 2.8x

earlier and its cost of debt has reduced to 8.3% (vs 8.7% in 4QFY17).

Schemes of arrangement involving i) Dalmia Cement (Bharat) Ltd and its subsidiaries and

ii) amongst Odisha Cement Ltd, Dalmia Bharat Ltd and Dalmia Cement (Bharat) Ltd are

pending for sanction by NCLT (Chennai).

Ramco Cement

Ramco is undertaking grinding capacity expansion in AP, West Bengal and Odisha - i)

expansion at its Vizag grinding unit from 0.9MTPA to 2MTPA; ii) expansion at the

Kolaghat grinding unit from 0.9MTPA to 2MTPA and; iii) setting up a new grinding unit

at Odisha with capacity of 0.9MTPA.

4MTPA split grinding units (2.2MTPA in TN, 0.9MTPA in Kolaghat and 0.9MTPA in Vizag,

AP) are operating at 58% capacity utilisation.



JK Lakshmi Cement

The company is in the process of installing 7.5MW of WHR and 20MW of thermal power

plants in Durg, which are likely to be commissioned in 3QFY18 and 3QFY19, respectively.

JK Lakshmi has expansion potential of 2MTPA at all the three locations - Sirohi, Durg and

Udaipur. Management expects USD 70-75/t of capital cost required to put up the

incremental capacity as the company has clearances and limestone reserves for the same.

JK Cement

JK Cement’s net debt declined INR 770mn, from INR 20.3bn on 31Mar’17 to INR 19.5bn

on 30Jun’17; the cost of debt is 10%; its UAE operations have a debt of USD 90mn

The company plans to incur capex of INR 2bn-INR 2.5bn during FY18

- INR 250mn on putty expansion in Katni; to be commissioned by June’18

- INR 300mn-INR 400mn on the mining land acquisition

- INR 1.75bn on maintenance capex in the existing plants

Please click on the links for detailed result notes

UltraTech Cement | In-line quarter; JPA assets ramp-up key monitorable

ACC | Volumes steady; Beat primarily on higher other operating income

Ambuja Cement | Outperformance on realisation growth; medium term concerns remain Shree Cement | Realisation led beat; power segment continues to disappoint

The Ramco Cements | In-line results; announces 3.1MTPA expansion in East India

JK Lakshmi Cement | Operationally inline; Cost escalation offset strong realisation

Dalmia Bharat | Operationally inline; Net debt reduced by INR6.4bn JK Cement | Mixed operating trends; white cement margins key monitorable

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/UTCEM_1QFY18ResultUpdate_19Jul17.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/ACC_2QCY17ResultUpdate_17Jul17.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Ambuja_2QCY17ResultUpdate_240717.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/SRCM_1QFY18ResultUpdate_310717.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/Ramco_1QFY18ResultUpdate_030817.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/JKLC_1QFY18ResultUpdate_030817.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/DBEL_1QFY18ResultUpdate_060817.pdf

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/JKCE_1QFY18ResultUpdate_160817.pdf



Valuation table Exhibit 18.

Company EV/EBITDA (x) EV/tonne (USD) PE (x) PBV (x)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ultratech Cement 15.9 12.8 9.4 214 198 187 41.2 25.7 17.6 4.2 3.7 3.1

Ambuja Cement 20.2 14.8 11.5 202 196 187 48.6 34.0 25.5 2.9 2.8 2.7

ACC 17.3 13.8 11.2 146 142 137 37.3 28.4 22.2 3.7 3.5 3.4

Shree Cement 21.9 14.3 11.7 272 220 216 40.3 29.3 26.7 6.3 5.0 4.1

Ramco Cement 13.0 11.8 9.4 165 138 132 21.8 19.6 15.7 3.7 3.2 2.7

Dalmia Bharat 13.1 11.2 9.3 176 162 153 42.2 28.0 20.0 4.3 3.8 3.2

JK Lakshmi 12.2 8.3 6.6 78 69 64 29.8 15.1 12.3 3.3 2.8 2.4

JK Cement 10.7 8.2 6.4 136 129 121 20.9 15.3 11.3 3.3 2.8 2.3


Valuation charts Exhibit 19.

Ultratech EV/EBITDA chart Ambuja EV/EBITDA chart

ACC EV/EBITDA chart Shree Cement EV/EBITDA chart

Ramco Cement EV/EBITDA chart Dalmia Bharat EV/EBITDA chart

JK Lakshmi EV/EBITDA chart JK Cement EV/EBITDA chart

Source: Company, JM Financial, Bloomberg

2

5

8

11

14

17

20

23

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Rolling EV/EBITDA

EV/EBITDA 5 year average (15.1x)


0

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EV/EBITDA



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Rolling EV/EBITDA

EV/EBITDA 5 year average (15x)


0

3

6

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12

15

18

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27Ju

n-0

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Rolling EV/EBITDA



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Jun-1

7

EV/EBITDA

EV/E 5 year average (10.9x)

EV/E 10 year average (8.7x)

0

3

6

9

12

15

Ap

r-11

Oct

-11

Apr-

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-12

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-13

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-14

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Ap

r-17

EV/EBITDA


EV/E max period average (7.2x)

0

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EV/EBITDA



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EV/EBITDA





Assumptions table Exhibit 20.

Company Capacity (MTPA) Volumes (MT) Realisation (INR/MT) EBITDA/t (INR/MT) Cost/t (INR/MT)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ultratech Cement 87.45 90.95 90.95 59.56 70.50 80.92 4,349 4,646 4,880 934 1,119 1,260 3,550 3,661 3,764

Ambuja Cement 29.65 29.65 29.65 22.97 25.24 27.94 4,456 4,725 4,917 783 948 1,053 3,672 3,777 3,864

ACC 33.30 33.30 33.30 24.30 25.64 27.31 4,554 4,784 4,977 563 710 805 4,007 4,097 4,202

Shree Cement 33.60 40.20 40.20 22.09 28.56 32.45 4,120 4,376 4,555 1,142 1,292 1,362 2,981 3,088 3,197

Ramco Cement 16.49 19.59 19.59 9.02 9.93 11.82 4,693 4,858 5,028 1,262 1,289 1,333 3,403 3,540 3,669

Dalmia Bharat 25.00 26.00 26.00 16.36 17.63 19.03 4,832 5,073 5,327 1,202 1,256 1,311 3,630 3,817 4,016

JK Lakshmi 12.40 13.00 13.00 8.69 9.30 9.90 3,658 3,876 4,017 545 701 765 3,145 3,216 3,297

JK Cement 10.47 10.47 10.47 7.15 7.85 8.61 3,775 3,964 4,122 554 665 732 4,013 4,174 4,337


Key financials Exhibit 21.

Company Net Sales (INR mn) EBITDA (INR mn) Net Profit (INR mn) EPS (INR)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ultratech Cement 303,013 378,597 454,054 65,378 90,362 115,369 26,895 43,175 62,890 98.0 157.3 229.1

Ambuja Cement 103,388 120,481 138,758 19,017 25,121 30,794 11,302 16,126 21,499 5.7 8.1 10.8

ACC 125,133 137,651 152,613 17,979 21,861 26,047 9,082 11,922 15,219 48.3 63.4 81.0

Shree Cement 98,801 136,322 159,555 26,704 39,652 47,302 14,956 20,591 22,582 429.3 591.0 648.2

Ramco Cement 44,866 50,739 61,936 13,310 14,660 17,571 7,410 8,266 10,345 31.1 34.7 43.5

Dalmia Bharat 83,515 94,216 106,511 21,468 24,155 27,215 5,509 8,294 11,595 61.9 93.2 130.3

JK Lakshmi 33,683 38,228 42,213 5,093 6,909 8,008 1,651 3,253 3,993 14.0 27.6 33.9

JK Cement 41,604 48,417 55,833 8,513 10,553 12,551 3,397 4,649 6,299 48.6 66.5 90.1


Key financial ratios Exhibit 22.

Company RoE (%) RoCE (%) Net Debt/EBITDA (x) Net Debt/Equity (x) DPS (INR)

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ultratech Cement 10.2 14.3 17.4 9.1 11.3 15.3 1.6 0.6 -0.1 0.4 0.2 0.0 10.0 11.0 12.0

Ambuja Cement 5.9 8.3 10.5 8.4 11.5 10.8 -1.6 -1.7 -1.9 -0.2 -0.2 -0.3 5.0 5.0 5.0

ACC 10.0 12.4 15.1 9.8 12.2 14.8 -1.5 -1.7 -1.7 -0.3 -0.4 -0.5 17.0 17.0 17.0

Shree Cement 15.6 17.1 15.4 17.1 18.9 17.0 -0.7 -1.0 -1.0 -0.2 -0.3 -0.3 24.0 24.0 24.0

Ramco Cement 16.8 16.3 17.4 12.7 12.8 14.8 0.9 0.8 0.2 0.3 0.2 0.1 4.7 5.2 6.5

Dalmia Bharat 10.1 13.5 16.1 7.1 9.4 10.9 1.5 0.8 0.2 0.6 0.3 0.1 6.2 9.3 13.0

JK Lakshmi 10.9 18.5 19.4 10.3 14.0 14.9 2.5 1.2 0.5 0.9 0.5 0.2 2.8 5.5 6.8

JK Cement 15.6 18.2 20.6 12.2 13.7 16.3 2.3 1.5 0.8 0.9 0.6 0.3 10.7 10.6 14.4




APPENDIX I

JM Financial Inst itut ional Secur it ies Limited

Corporate Identity Number: U65192MH1995PLC092522 Member of BSE Ltd. and National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.

SEBI Registration Nos.: BSE - INZ010012532, NSE - INZ230012536 and MSEI - INZ260012539, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.

Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com

Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]

Definition of ratings

Rating Meaning

Buy Total expected returns of more than 15%. Total expected return includes dividend yields.

Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.

Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) 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 associates solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst, Merchant Banker and a Stock Broker having trading memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of the investor.

JM Financial Institutional Securities provides a wide range of investment banking services to a diversified client base of corporates in the domestic and international markets. It also renders stock broking services primarily to institutional investors and provides the research services to its institutional clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management, brokerage and financing group. JM Financial Institutional Securities and/or its associates might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, broking, financing or any other advisory services to the company(ies) covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (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) covered under this report or (c) act as an advisor or lender/borrower to, or may have any financial interest in, such company(ies) or (d) considering the nature of business/activities that JM Financial Institutional Securities is engaged in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report. The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts) Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the right

to make modifications and alterations to this statement as they may deem fit from time to time.



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