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Financial SummaryY/E Dec (Rs mn) C13 C14 C15e C16e C17eNet sales 90,938 99,187 99,680 111,156 124,993growth (%) (6.1) 9.1 0.5 11.5 12.4EBITDA margin (%) 18.2 19.4 16.2 19.2 20.5Adjusted net profit 10,290 12,449 9,134 13,147 16,120EPS (Rs) 6.7 8.1 5.9 8.5 10.4growth (%) (34.7) 21.0 (26.6) 43.9 22.6P/E (x) 31.3 25.9 35.4 24.6 20.1EV/EBITDA (x) 17.0 14.4 17.5 13.1 11.3Dividend yield (%) 1.5 2.1 1.7 1.7 1.7RoE (%) 11.3 12.7 8.9 12.3 14.0RoCE (%) 15.9 17.0 12.0 16.1 18.3Source: Company, SSLe

Subdued in-line performance YoY; few positive signs QoQ Ambuja Cement’s (ACEM) 3QC15 net sales declined 4.1% YoY to Rs20.95bn, as realizations fell sharply, while volumes grew marginally (in line with SSLe). Realizations fell ~6% YoY to Rs4,276/tonne (unadjusted). However, despite the decline in realizations, volumes grew marginally by just 2% YoY (including clinker sales of 0.08MT) to 4.9MT, indicating weak demand in key ACEM markets. ACEM’s capacity utilization hovered ~69% (marginally higher than 67.5% in 3QC14). The company continued its cost control efforts as the total cost/tonne decreased ~4% YoY to Rs3,620/tonne, aided by raw material and logistic costs. Consequently, EBITDA/tonne reduced to Rs656/tonne (from Rs789/tonne), which was lower on account of muted realization growth. EBITDAM shrank to 16% (earlier 17.9%). The EBITDA performance was healthy QoQ, driven by 2% realization growth and flat cost/tonne. This helped EBITDA/tonne to jump 15% sequentially from Rs570/tonne (adjusted to MDR provisions) in 2QC15. Adjusting for DMF provisions, however, EBITDA came a tad lower at Rs3.37bn vs. Rs3.57bn in 2QC15, as volumes fell 18% QoQ. Meanwhile, APAT declined 24.5% YoY to Rs1.8bn (in line with SSLe) vs. Rs2.39bn in the last-year period due to lower realizations and rising depreciation and interest costs YoY. APAT declined 9.6% QoQ due to lower other income in 3QC15. We have maintained our target price at Rs218/share (earlier Rs208) based on C16-end capacities of 28.7 MT and maintain HOLD rating on the stock. At our target price, ACEM trades at a P/E of 25.7x and has an EV/EBITDA of 13.8x on C16e earnings. Marginal volume growth: ACEM’s cement volumes grew marginally by 2% YoY to 4.9MT (including clinker sales of 0.08MT). However, realizations declined 6.1% YoY to Rs4,276/tonne, indicating weak demand. West and North (including the Central region) India and East India contribute to ~82% and ~18% of ACEM sales, respectively. Sequentially, however, realizations increased 5%/2%/flat in North/West/East India. Cost control continues: ACEM’s cost control measures continued in 3QC15, as the cost/tonne declined ~4% YoY to Rs3,620/tonne. The decline was aided by raw material and logistics costs. Power and fuel cost/tonne came at Rs992/tonne vs.Rs1061/tonne YoY due to higher use of pet-coke 53% (50% in 3QC14) and cheaper imported coal 24% vs. 9% in 3QC14 replacing the domestic coal. Raw material cost/tonne, excluding changes in inventories, came at Rs367/tonne vs. Rs408/tonne in 3QC14. On the other hand, logistics costs (including inter-units transfer for clinker) came flat at Rs1130/tonne vs. Rs1141/tonne in the same-period last year, which was commendable. Meanwhile, EBITDA declined ~14.4%YoY to Rs3.37bn, whereas EBITDAM shrank to 16% YoY (earlier 17.9%) after adjusting for DMF provisions. Earnings estimates maintained: We have maintained our full-year estimates for C15e/C16e/C17e. Meanwhile, key ACEM continued to face weak demand and there was limited improvement in realizations, as indicated by the 9M performance; however, we expect steady recovery in demand in North/West and East India, as a consequence of the government’s aggressive spending on infrastructure (particularly roads). This should help ACEM improve its dispatches in C16e/C17e. Helped with this and a steady-to-marginal increase in cement realizations and strict cost controls should fillip performance in C16e/C17e. We have not yet factored in the same; however, we will be watching the cement dispatches and prices keenly. We will revisit our earnings and take a call on the stock in case of sustained/fast recovery. Valuation and recommendation: We continue to value ACEM based on the replacement cost method, and have a base cost assumption of Rs7.5bn/MT. The stock currently trades at a premium valuation to the replacement cost based on C16 capacities. We have assigned a 40% premium to the replacement cost. Accordingly, we revised our target price to Rs218/share based on its C16-end capacities of 28.7MT and our HOLD rating. At our target price, the stock trades at a P/E of 25.7x and EV/EBITDA of 13.8x C16 earnings estimates.

Ambuja Cement LtdACEM IN; ABUJ.BO

3QC15 result review HOLD

Current price (28 Oct ) RsTarget price RsUpside/(downside) % 4 Earning estimate Unchanged

Market dataMkt capitalisation Rs bn 324.0Average daily vol '000 4632.152-week H/L Rs 287 / 196.25Shares O/S mn 1551.9Free float mn 771.6Promotor holding % 50.3Foreign holding % 27.1Face value Rs 2.0

Price performance (%)1m 3m 6m 1yr

Nifty (abs) 4.8 (2.0) (1.4) 1.8Stock (abs) 2.8 (9.3) (9.5) (7.2)Relative to Index (2.0) (7.3) (8.1) (9.0)

Performance

209 218

(20)

(10)

0

10

20

200

225

250

275

300

Oct-14 Jan-15 Apr-15 Jul-15 Oct-15Ambuja Cements (LHS) Rel. to Nifty (RHS)

(%)(Rs)

Source: Bloomberg, SSLe

October 29, 2015Cement | India

Milind Raginwar +91 22 4227 3362 milind.raginwar@sbicapsec.com Ashutosh Adsare +91 22 4227 3496 ashutosh.adsare@sbicapsec.com

Ambuja Cement Ltd SBICAP Securities Ltd

milind.raginwar@sbicapsec.com I ashutosh.adsare@sbicapsec.com October 29, 2015 | 2

Quarterly FinancialsY/E Dec (Rs mn) 3QC15 3QC14 YoY (%) 2QC15 QoQ (%) 3QC15e Var (%)Net sales 21,109 22,021 (4.1) 25,105 (15.9) 21,609 (2.3) Cost of goods 1,090 1,487 1,782 1,595

Employee benefits exp. 1,515 1,424 1,501 1,520

Power & fuel costs 4,862 5,098 5,843 4,745

Other Expenses 10,273 10,077 12,408 10,518

EBITDA 3,369 3,934 (14.4) 3,570 (5.6) 3,232 4.3 EBITDAM (%) 16.0 17.9 14.2 15.0 Depreciation and amort. 1,553 1,302 1,485 1,479

EBIT 1,817 2,633 (31.0) 2,085 (12.9) 1,753 3.7 EBITM (%) 8.6 12.0 8.3 8.1 Other income 473 885 1,057 850

Interest expenses 207 179 316 333

Extraordinary/Exceptional

Profit before tax 2,082 3,339 (37.6) 2,826 (26.3) 2,270 (8.3) Tax expense 547 949 831 545

Effective tax rate (%) 26 28 29 24

PAT 1,536 2,391 (35.8) 1,995 (23.0) 1,725 (11.0) Minority Interest

Reported net profit 1,536 2,391 (35.8) 1,995 (23.0) 1,725 (11.0) Non-recurring items (268) - - -

Adj. net profit 1,804 2,391 (24.5) 1,995 (9.6) 1,725 4.6 NPM (%) 8.5 10.9 7.9 8.0

EPS (Rs) 1.2 1.6 (24.5) 1.3 (9.6) 1.1 4.6

Source: Company, SSLeRevenues inculde other operating income

Realizations continue to be weak YoY; but improve QoQ Margins recovery delayed due to lower realizations

4,26

1 4,

557

4,53

4 4,

292

4,27

0 4,

360

4,10

3 4,

142

4,35

6 4,

631

4,55

4 4,

376

4,46

5 4,

187

4,27

6

6.2

5.6

4.8

5.4

6.0 5.

4 4.

9 5.

3 6.

1 5.

8 4.

8 5.

4 5.

4 6.

0 4.

9

3.0

4.0

5.0

6.0

7.0

3,600

3,900

4,200

4,500

4,800

1QC

122Q

C12

3QC

124Q

C12

1QC

132Q

C13

3QC

134Q

C13

1QC

142Q

C14

3QC

144Q

C14

1QC

152Q

C15

3QC

15

(MT)

(Rs/

t)

Realization/t (LHS) Volume (RHS)

1,20

5 1,

283

1,18

1 79

4 90

8 91

5 52

3 54

6 95

3 98

2 78

9 61

1 86

8 61

5 65

6

29.3

28

.6

26.4

19

.5

21.7

22

.0

13.3

13

.9

22.2

21

.6

17.9

14

.9

20.7

15

.3

16.0

0

8

16

24

32

0

350

700

1,050

1,400

1QC

122Q

C12

3QC

124Q

C12

1QC

132Q

C13

3QC

134Q

C13

1QC

142Q

C14

3QC

144Q

C14

1QC

152Q

C15

3QC

15

(%)

(Rs/

t)

EBITDA/t (LHS) Margin (RHS) Source: Bloomberg, SSLe

EBITDAM slipped mainly due to the lower realizations, though volumes increased

marginally and cost control measures continued

Ambuja Cement Ltd SBICAP Securities Ltd

milind.raginwar@sbicapsec.com I ashutosh.adsare@sbicapsec.com October 29, 2015 | 3

Valuations

C15e C16e C17eEquity Share Capital (Rs mn) 1,880 1,880 1,880

FV (Rs) 10 10 10

No of equtiy shares (mn) 187.95 187.95 187.95

CMP (Rs) 1,380 1,380 1,380M-cap (Rs mn) 259,371 259,371 259,371

Net Debt (13,494) (8,947) (13,812)

EV 245,877 250,424 245,559

Total Capacity 30.239 32.689 32.689

EV/tonne (US $) 135.5 127.7 125.2EV/tonne (Rs) 8,131 7,661 7,512Source: SSLe 1-year forward EV/tonne

0

100

200

300

400Ja

n-06

Apr-

06Ju

l-06

Oct

-06

Feb-

07M

ay-0

7Au

g-07

Nov

-07

Mar

-08

Jun-

08Se

p-08

Dec

-08

Apr-

09Ju

l-09

Oct

-09

Jan-

10M

ay-1

0Au

g-10

Nov

-10

Feb-

11Ju

n-11

Sep-

11D

ec-1

1M

ar-1

2Ju

l-12

Oct

-12

Jan-

13Ap

r-13

Aug-

13N

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3Fe

b-14

May

-14

Sep-

14D

ec-1

4M

ar-1

5Ju

n-15

Oct

-15

(Rs)

Price $100 $140 $180 $220 $260 Source: Bloomberg, SSLe

The stock currently trades at a fair valuation hence we maintain our HOLD rating

Ambuja Cement Ltd SBICAP Securities Ltd

milind.raginwar@sbicapsec.com I ashutosh.adsare@sbicapsec.com October 29, 2015 | 4

Financials Income Statement Balance SheetY/E Dec (Rsmn) C13 C14 C15e C16e C17e Y/E Dec (Rsmn) C13 C14 C15e C16e C17eNet sales 90,938 99,187 99,680 111,156 124,993 Cash & Bank balances 23,411 24,581 24,481 24,021 23,250growth (%) (6.1) 9.1 0.5 11.5 12.4 Other Current assets 37,616 44,197 35,881 41,639 38,968Operating expenses (75,165) (80,525) (84,270) (90,542) (100,176) Investments 1,045 1,057 443 443 443EBITDA 16,670 19,337 16,322 21,580 25,846growth (%) (33.2) 16.0 (15.6) 32.2 19.8 Net fixed assets 66,902 68,501 77,659 81,040 96,099Depreciation &amortisation (4,901) (5,095) (6,041) (6,139) (6,352) Goodwill & intangible assets 673 673 748 823 898EBIT 15,544 17,721 13,059 18,247 22,259 Other non-current assets 0 0 0 0 0Other income 3,775 3,479 2,778 2,806 2,765 Total assets 129,647 139,009 139,210 147,966 159,656Interest paid (651) (645) (988) (1,010) (1,135)Extraordinary/Exceptional items Current liabilities 28,699 31,802 29,301 31,191 33,044PBT 17,549 19,591 12,071 17,237 21,124 Borrowings 448 283 207 282 357Tax (4,603) (4,627) (2,937) (4,091) (5,004) Other non-current liabilities 5,643 5,890 5,930 5,970 6,010Effective tax rate (%) (26.2) (23.6) (24.3) (23.7) (23.7) Total liabilities 34,791 37,975 35,439 37,444 39,411Net profit 12,946 14,964 9,134 13,147 16,120Minority interest 0 0 0 0 0 Share capital 3,092 3,100 3,100 3,100 3,100Reported Net profit 12,946 14,964 9,134 13,147 16,120 Reserves & surplus 91,765 97,935 100,672 107,422 117,146Non-recurring items 2,656 2,515 0 0 0 Shareholders' funds 94,857 101,035 103,772 110,522 120,245Adjusted Net profit 10,290 12,449 9,134 13,147 16,120 Minority interest 0 0 0 0 0growth (%) (34.7) 21.0 (26.6) 43.9 22.6 Total equity & liabilities 129,647 139,010 139,210 147,966 159,656

Key Financials ratios Cash Flow StatementY/E Dec (Rsmn) C13 C14 C15e C16e C17e Y/E Dec (Rsmn) C13 C14 C15e C16e C17eProfitability and return ratios (%) Pre-tax profit 17,549 19,591 12,071 17,237 21,124EBITDAM 18.2 19.4 16.2 19.2 20.5 Depreciation 4,424 4,383 6,041 6,139 6,352EBITM 16.9 17.7 13.0 16.3 17.7 Chg in working capital 2,487 -584 1,346 (2,690) (3,536)NPM 11.3 12.6 9.2 11.8 12.9 Total tax paid (7,952) (5,417) (4,736) (2,782) (3,959)RoE 11.3 12.7 8.9 12.3 14.0 Other operating activities 0 0 0 0 0RoCE 15.9 17.0 12.0 16.1 18.3 Operating CF 16,508 17,974 14,720 17,905 19,980RoIC 20.0 22.5 14.9 18.7 19.9

Capital expenditure (8,174) (5,982) (15,273) (9,595) (21,485)Per share data (Rs) Chg in investments (1,326) (3,843) 8,115 (2,500) 7,000O/s shares 1542.2 1545.9 1549.8 1549.8 1549.8 Other investing activities 0 0 0 0 0EPS 6.7 8.1 5.9 8.5 10.4 Investing CF (9,500) (9,825) (7,159) (12,095) (14,485)FDEPS 6.7 8.1 5.9 8.5 10.4 FCF 7,008 8,149 7,562 5,810 5,495CEPS 9.9 11.4 9.8 12.4 14.5BV 61.5 65.4 67.0 71.3 77.6 Equity raised/(repaid) 185 515 675 675 675DPS 3.6 5.0 3.9 3.9 3.9 Debt raised/(repaid) (29) (165) (76) 75 75

Dividend (incl. tax) (6,473) (7,239) (8,262) (7,019) (7,017)Valuation ratios (x) Other financing activities 184 (90) 0 0 0PE 31.3 25.9 35.4 24.6 20.1 Financing CF (6,134) (6,979) (7,663) (6,269) (6,267)P/BV 3.4 3.2 3.1 2.9 2.7EV/EBITDA 17.0 14.4 17.5 13.1 11.3 Net chg in cash & bank bal. 874 1,170 (101) (460) (771)EV/Sales 3.1 2.8 2.9 2.5 2.3 Closing cash & bank bal 23,411 24,581 24,481 24,021 23,250

Other key ratiosD/E (x) (0.4) (0.4) (0.4) (0.4) (0.3)DSO (days) 9 8 9 10 10

Du Pont Analysis - RoENPM (%) 11.3 12.6 9.2 11.8 12.9Asset turnover (x) 0.7 0.7 0.7 0.8 0.8Equity Multiplier (x) 1.4 1.4 1.4 1.3 1.3RoE (%) 11.3 12.7 8.9 12.3 14.0Source: Company, SSLe

Ambuja Cement Ltd SBICAP Securities Ltd

milind.raginwar@sbicapsec.com I ashutosh.adsare@sbicapsec.com October 29, 2015 | 5

Recommendation History

140

160

180

200

220

240

260

280

300

Feb-

13

Apr-

13

Jun-

13

Aug-

13

Oct

-13

Dec

-13

Feb-

14

Apr-

14

Jun-

14

Aug-

14

Oct

-14

Dec

-14

Feb-

15

Apr-

15

Jun-

15

Aug-

15

Oct

-15

(Rs)

BUY SELLBUY HOLD

Source: Bloomberg, SSLe

Date Stock Price TP Rec.

2-Apr-13 174 179 HOLD

3-May-13 189 172 HOLD

25-Jul-13 171 171 HOLD

28-Oct-13 190 166 SELL

10-Feb-14 162 162 HOLD

22-Apr-14 215 181 SELL

25-Apr-14 209 181 SELL

25-Jul-14 218 208 HOLD

31-Oct-14 228 201 HOLD

19-Feb-15 265 218 SELL

29-Apr-15 238 221 HOLD

27-Jul-15 234 218 HOLD

29-Sep-15 203 208 HOLD

28-Oct-15 205 218 HOLD

SBICAP Securities Limited (CIN): U65999MH2005PLC155485  | Research Analyst Registration No INH000000602 

SEBI Registration No.: NSE Capital Market: INB 231052938  |  NSE Derivatives: INF 231052938  |BSE Capital Market: INB 011053031 

Currency Derivatives: INE 231052938  | CDSL: IN‐DP‐CDSL‐370‐2006 | IRDA/IR2/2014/241 

Corporate Office:  Marathon Futurex, A & B Wing, 12th Floor, N. M. Joshi Marg, Lower Parel, Mumbai ‐400013. 

Tel.: 91‐22‐42273300/01 | Fax: 91‐22‐42273335 | Email: sbicapresearch@sbicapsec.com | www.sbismart.com  

KEY TO INVESTMENT RATINGS (w.e.f. February 2013) Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points); 2=HOLD (expected to give absolute returns between -10 to 15 percentage points); 3=SELL (expected to give absolute returns less then -10 percentage points)

DISCLOSURES & DISCLAIMERS

Analyst Certification The views expressed in this research report (“Report”) accurately reflect the personal views of the research analysts (“Analysts”) employed by SBICAP Securities Limited (SSL) about any and all of the subject issuer(s) or company(ies) or securities. This report has been prepared based upon information available to the public and sources, believed to be reliable. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

The Analysts engaged in preparation of this Report or his/her relative:- (a) do not have any financial interests in the subject company mentioned in this Report; (b) do not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) do not have any material conflict of interest at the time of publication of the Report.

The Analysts engaged in preparation of this Report:- (a) have not received any compensation from the subject company in the past twelve months; (b) have not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) have not received any compensation for products orservices other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) have not received any compensation or other benefits from the subjectcompany or third party in connection with the Report; (f) has not served as an officer, director or employee of the subject company; and (g) are not engaged in market making activity for the subject company. Name Qualification Designation

Milind Raginwar MBA (Finance) , LLB Analyst

Ashutosh Adsare B.Com, MMS (Finance) Associate

Ambuja Cement Ltd SBICAP Securities Ltd

milind.raginwar@sbicapsec.com I ashutosh.adsare@sbicapsec.com October 29, 2015 | 6

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