Cement : Higher profitability to sustain, given increasing capex cost: Motilal Oswal

Top-3 maintain 8-9% volume growth guidance; seasonal price correction
below normal
We hosted ACC, Ambuja Cements and Grasim/Ultratech at the Motilal Oswal 8th Annual
Global Investor Conference. Mr Kuldeep Kaura, CEO & MD of ACC, presented at the CEO Track.
Highlights:
 Volumes are likely to grow 8-9% in FY13, driven by individual housing and expected
infrastructure push. Seasonal price correction has been sub-normal till August due to
delayed monsoon.
 Capacity addition should slow down to ~60mt over FY13-15. Increase in capex cost
necessitates sustenance of higher profitability; downside risks are limited.
 The costs of power, fuel and freight, which have been rising, are likely to stabilize at
elevated levels. The focus would remain on enhancing operating efficiencies and
maintaining margins.
 We prefer Ambuja and Grasim/Ultratech among large-caps and Shree Cement among
mid-caps.Top-3 maintain 8-9% volume growth guidance; seasonal price correction
below normal
We hosted ACC, Ambuja Cements and Grasim/Ultratech at the Motilal Oswal 8th Annual
Global Investor Conference. Mr Kuldeep Kaura, CEO & MD of ACC, presented at the CEO Track.
Highlights:
 Volumes are likely to grow 8-9% in FY13, driven by individual housing and expected
infrastructure push. Seasonal price correction has been sub-normal till August due to
delayed monsoon.
 Capacity addition should slow down to ~60mt over FY13-15. Increase in capex cost
necessitates sustenance of higher profitability; downside risks are limited.
 The costs of power, fuel and freight, which have been rising, are likely to stabilize at
elevated levels. The focus would remain on enhancing operating efficiencies and
maintaining margins.
 We prefer Ambuja and Grasim/Ultratech among large-caps and Shree Cement among
mid-caps.

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Volume growth guidance of 8-9% maintained; seasonal price correction
below normal
 Cement majors unanimously guided strong medium-term demand outlook, with
8-9% volume growth, largely led by individual housing and the rural economy.
 Pre-election infrastructure spending has the potential to boost growth to 9.5%+,
while expectations from organized real estate remain subdued.
 Delayed monsoon has resulted in lower seasonal price moderation till August
2012.

Maintain Buy on Ambuja Cements and Grasim/UltraTech; Neutral on ACC
We believe that the worst is behind for the cement industry and a gradual and
consistent improvement in capacity utilization and operating performance is
impending. After the recent outperformance, cement stocks are trading at historical
average valuations, leaving limited room for further re-rating. We expect strong
earnings growth to drive stock performance, hereon. We maintain:
 Buy on Ambuja Cements (14.3x CY13E EPS; EV of 8.1x CY13E EBITDA and USD163/
ton), given (1) favorable market mix, (2) diversified fuel mix and efficient
operations, translating into (3) above average profitability.
 Buy on UltraTech (14.2x FY14E EPS; EV of 8.6x FY14E EBITDA and USD145/ton), due
to (1) pan India presence, (2) volume growth, driven by capacity ramp-up, and
Grasim (8x FY14E EPS, EV of 4.8x FY14E EBITDA) due to attractive valuations.
 Neutral on ACC (15.3x CY13E EPS; EV of 8.4x CY13E EBITDA and USD126/ton), due to
(1) fair valuations, (2) potential impact due to reduction in availability of linkage
coal, and (3) below average cost efficiencies.