Indian Cement Industry

Confluence of growth, efficiency & frugality in the current cycle

01 September 2021 Indian Cement Industry

Contents
Indian Cement Industry ....................................................................................................................................................... 3
Story in charts .................................................................................................................................................................... 4
Global peer group comparative analysis ............................................................................................................................... 6
Cement sector coverage – Investment thesis ........................................................................................................................ 7
Coverage operating metrics.................................................................................................................................................. 9
Investment analysis ........................................................................................................................................................... 10
Demand drivers remain strong ........................................................................................................................................... 10
Regional dynamics ............................................................................................................................................................. 20
Capacity additions to continue ........................................................................................................................................... 24
Current limestone reserves, acquired mines through auctions to support capacity expansion .............................................. 28
New entrants strive to survive............................................................................................................................................ 29
Incremental supply is likely to be lower than incremental demand...................................................................................... 33
Industry clinker utilisation to improve gradually ................................................................................................................. 35
Improved utilisation to help maintain prices and pass on cost inflation; we factor in a price CAGR of 2% between FY21-24E 37
Valuations ......................................................................................................................................................................... 42

Companies Section
Ultratech Cement............................................................................................................................................................... 46
Shree Cement .................................................................................................................................................................... 72
Ambuja Cements ............................................................................................................................................................... 99
ACC ................................................................................................................................................................................. 125
Dalmia Bharat .................................................................................................................................................................. 152
JK Cement........................................................................................................................................................................ 175
The Ramco Cements......................................................................................................................................................... 202
Birla Corporation ............................................................................................................................................................. 228

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 2
 01 September 2021 Systematix
Indian Cement Industry

Institutional Equities

Indian Cement Industry 01 September 2021

Confluence of growth, efficiency & frugality in the current cycle

SECTOR REPORT Barring some COVID-19-led weakness, cement demand has remained strong over
the last three years. We remain sanguine about the long-term cement demand
Industry Cement outlook given the government’s thrust on infrastructure development and
affordable housing, rapid urbanisation and a rising working-age population. While
BSE Basic Materials vs. BSE Sensex capacity additions in the industry are likely to continue, incremental supply will be
6,500 lower than incremental demand. We expect a clinker capacity CAGR of 4.7% against
6,000
5,500 a demand CAGR of 8.6% between FY21-24E. The EBITDA/ton of our coverage
5,000
4,500 universe is expected to grow at a CAGR of 2.2% over FY21-24E, leading to
4,000
3,500 improvement in the average RoE (15.3% in FY24E vs. 14% in FY21)/RoCE (17.8% in
3,000
2,500
FY24E vs. 15.6% in FY21). Improved profitability and reduced working capital in the
2,000 last few years has led to an improvement in leverage for our coverage companies,
Jul-21
Jun-21
Sep-20

Nov-20

Jan-21
Aug-20

Feb-21
Mar-21

Apr-21

Aug-21
Oct-20

Dec-20

May-21

which along with the improvement in RoE/RoCE should help sustain/improve their
BSE Basic Materials Sensex
valuations. We initiate coverage on the sector with a positive view.
Source: Bloomberg, Systematix Institutional Research Demand drivers intact; incremental supply to be lower than demand growth
After remaining weak between FY13-18 (4.5% CAGR), cement demand has picked up
with the government’s impetus on infrastructure and housing projects. The long-term
Sector recommendations drivers of cement demand (National Infrastructure Protection Plan, Bharatmala
CMP Upside projects, mission ‘Housing for All’, rapid urbanisation, rising rural incomes, historically
Companies TP (Rs) Reco.
(Rs) (%) low interest rates on housing loans) remain intact. We expect cement demand to
Ultratech
7,834 9,275 18% BUY
grow at a CAGR of 8.6% over FY21-24E vs. clinker capacity CAGR of 4.7%, which
Cement
should lead to an improvement in the industry clinker utilisation.
Shree
28,296 29,855 6% HOLD
Cement Industry profitability improved between FY17-21; expect further improvement
Ambuja
421 500 19% BUY
Cements Improvement in clinker utilisation led to better realisations (4.1% CAGR between
ACC 2,413 2,995 24% BUY FY17-21), resulting in improved profitability for the sector (average EBITDA/ton
Dalmia
2,200 2,615 19% BUY
improved ~10% between FY17-21). The profitability of our coverage companies
Bharat
improved at a CAGR of 7.3% between FY17-21, leading to an average RoE/RoCE
JK Cement 3,261 3,160 -3% HOLD
improvement of 2.7%/3.3%. We expect the average EBITDA/ton of our coverage
The Ramco
Cements
1,008 1,205 20% BUY companies to grow at a CAGR of 2.2% over FY21-24E (on a high base of FY21).
Birla Leverage of our coverage companies to remain under control
1,355 1,685 24% BUY
Corporation
Source: Systematix Institutional Research Strong improvement in profitability during FY19-21 led to a combined OCF (operating
cash flow) CAGR of 38.9% for our coverage companies, leading to an FCF (Free cash
flow) CAGR of 57.7%. We expect the combined OCF of our coverage universe to
increase at a CAGR of 5.5% over FY21-24E, leading to an FCF CAGR of 10.9%. The
combined net debt of our coverage companies has reduced by Rs 197.2bn during
FY19-21 (Rs 72.1bn in FY21 vs. Rs 269.3bn in FY19), leading to an improvement in the
average net debt/EBITDA (0.31x in FY21 vs. 1.13x in FY19). We expect a further
improvement in the net debt/EBITDA of our coverage universe (-0.55x in FY24E).
Outlook & Valuation
Sanjeev Kumar Singh The cement industry will continue to exhibit pricing power in the medium-term led by
sanjeevsingh@[Link] an improvement in clinker utilisation, which implies improved profitability for our
+91 22 6704 8017
coverage companies. We expect the average RoE of coverage companies to improve
Rahul Jain from 14% in FY21 to 15.3% in FY24E whereas RoCE is expected to improve from 15.6%
rahuljain@[Link]
+91 22 6704 8066
in FY21 to 17.8% in FY24E. We initiate coverage on ACC, ACEM, BCORP, DALBHARAT,
TRCL and UTCEM with a BUY rating and JKCE/SRCM with a HOLD rating. UTCEM is our
Harsh Mittal
top pick in the large-cap space, followed by ACEM and DALBHARA. TRCL is our top
harshmittal@[Link]
+91 22 6704 8098 pick in the mid-cap space.

Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 3
01 September 2021 Indian Cement Industry

Story in charts
Exhibit 1: GDP to cement demand growth Exhibit 2: Rising per capita income
3 160,000 14
2.5
3 2.3 140,000 12
10
2 120,000
1.7 8
1.6 1.5 100,000
1.4 6
(x)

2 1.2

(Rs)

(%)
1.0 1.1 80,000 4
1 60,000 2
0
1 40,000
-2
0 20,000 -4
FY81-85

FY86-90

FY91-95

FY96-00

FY01-05

FY06-10

FY11-15

FY16-21

FY22E-24E
0 -6

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21
GDP/Cement consumption Per capita net income YoY chg (%) (RHS)

Source: Systematix Institutional Research, Industry, RBI Source: Systematix Institutional Research, National Account Statistics

Exhibit 3: Interest rates on housing loans at historically low levels Exhibit 4: Rural wages increased at an 8.8% CAGR in 16 years
21.0% 400 25
19.0% 350
20
17.0% 300

15.0% 250 15
(Rs/day)

13.0% 200

(%)
150 10
11.0%
100
9.0% 5
50
7.0%
0 0

FY14
FY15
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13

FY16
FY17
FY18
FY19
FY20
FY21
5.0%
Mar-98
Mar-94

Mar-96

Mar-00

Mar-02

Mar-04
Jul-05
Mar-06

Mar-08

Mar-10
Jul-11
Mar-12
Nov-12
Mar-14

Mar-16

Mar-18
Nov-18
Mar-20
Nov-94
Jul-95
Nov-96
Jul-97
Nov-98
Jul-99
Nov-00
Jul-01
Nov-02
Jul-03
Nov-04

Nov-06
Jul-07
Nov-08
Jul-09
Nov-10

Jul-13
Nov-14
Jul-15
Nov-16
Jul-17

Jul-19
Nov-20
Jul-21

Rural wage/day YoY chg

Source: Systematix Institutional Research, SBI Source: Systematix Institutional Research, CMIE

Exhibit 5: Average investment in infrastructure spending should Exhibit 6: Regional break-up of ECs received*
increase 2x over the FY13-19 average
20 100
18 90
16 80
14 70
(Rs lakh crore)

12 60
(mt)

10 50
8 40
6 30
4 20
2 10
0 0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20-25E North Central East West South
average
Centre State Private North Central East West South

Source: Systematix Institutional Research, Department of Economic Affairs Source: Systematix Institutional Research, Industry; *based on clinker capacities for
which orders have not been placed

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 4
01 September 2021 Indian Cement Industry
Exhibit 7: The low base of FY21 to support higher volume growth in Exhibit 8: Clinker capacity addition to be lower than demand
the Southern/Western regions growth
14 12
11.6 9.7
12 10 9.3
10.3
10
8.6 8 7.1
8 7.3 7.5 6.2
6.7 5.7

(%)
(%)

6
4.7
6 4.7 4.2
4.6 4.2
3.7 4 3.2 3.0 3.4
4 2.8 2.6
2 1.3 1.5
2

0 0
North Central East West South Pan-India North Central East West South Pan-India

FY19-24E FY21-24E FY19-24E FY21-24E

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 9: Ex-South, clinker utilisation to remain strong in the Exhibit 10: Net debt/EBITDA in FY21 at comfortable levels
Jan-March period
100 98.8
3 2.5
95.4 95.3
1.8
95 93.1 93.2 2 1.3
89.3 1 0.7
90 87.7
86.3 87.0 86.5 0.0
(%)

(x)

84.7 0
85
-1
80 -1.1
-2 -1.6
75 -3 -2.3
Q4FY14

Q4FY15

Q4FY16

Q4FY17

Q4FY18

Q4FY19

Q4FY20

Q4FY21E

Q4FY22E

Q4FY23E

Q4FY24E

Dalmia Bharat
JK Cement
UltraTech

Birla Corp
Ramco
ACC

Ambuja

Shree
Average clinker utilisation ex-South region

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Companies,*Dec-ending companies

Exhibit 11: Valuation of coverage companies on EV/EBITDA basis Exhibit 12: Valuation of coverage companies on EV/ton basis

25.0 25
ULTRATECH
AMBUJA AMBUJA
20.0 20
FY23E EBITDA/ton (USD)
FY21-24E EBITDA CAGR

DALMIA
ACC ULTRATECH
15.0 15 SHREE
RAMCO JK
(%)

DALMIA RAMCO
ACC
10.0 10 BIRLA
BIRLA SHREE
JK
5.0 5

- -
- 5.0 10.0 15.0 20.0 25.0 -2 48 98 148 198 248 298
FY23E EV/EBITDA (x) FY23E EV/Ton (USD)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 5
01 September 2021 Indian Cement Industry

Global peer group comparative analysis

Exhibit 13: Global cement companies’ relative valuation table
Market EPS
Global Cement Companies EV/EBITDA P/BV P/E RoE (%) RoCE (%)
Capitalisation CAGR (%)
Europe (USD bn) CY21E CY22E CY21E CY22E CY21E CY22E CY21E CY22E CY20 CY20-22E
LafargeHolcim Ltd 35.1 7.0 6.6 1.2 1.1 12.5 11.2 9.6 10.4 11.1 23%
Heidelberg Cement 17.1 5.9 5.7 1.0 0.9 8.9 8.4 11.3 11.2 14.3 NA
Indonesia
Semen Indonesia 3.9 9.0 8.2 1.5 1.4 20.6 16.1 7.7 9.1 7.6 12%
SIAM Cement 15.5 9.5 9.2 1.4 1.4 10.7 10.8 14.0 13.0 16.1 17%
China
Anhui Conch Cement 32.1 2.7 2.6 1.1 1.0 6.2 6.1 19.8 17.7 25.0 0%
BBMG Group 3.9 12.0 11.0 0.4 0.4 10.1 8.4 3.6 4.0 NA NA
China National Building Material [Link]. 10.9 5.7 5.3 0.7 0.6 4.7 4.3 14.9 14.8 16.9 2%
China Resources Cement Holdings Ltd. 6.8 4.3 4.1 1.0 0.9 6.3 6.0 16.0 15.7 23.9 -1%
West China Cement 0.8 2.9 2.7 0.5 0.4 3.1 2.9 14.0 13.6 15.5 9%
Taiwan
Asia Cement 5.3 7.6 7.4 0.9 0.9 8.5 8.4 10.7 10.3 28.5 5%
Taiwan Cement 10.1 9.4 8.9 1.3 1.3 12.3 11.8 11.3 11.5 18.9 -4%
Middle East
Saudi Cement Company 2.6 15.1 14.2 NA NA 22.3 19.8 17.0 19.5 18.1 3%
Southern Province Cement Co 2.8 14.5 13.4 3.3 NA 20.9 18.5 15.4 17.1 NA -4%
Yamama Cement Co 1.7 NA NA NA NA NA NA NA NA NA NA
Yanbu Cement Co 1.8 14.4 11.7 2.3 2.4 25.4 17.9 9.1 13.1 8.3 15%
Latin America
Cementos Argos SA 2.0 7.8 7.2 1.0 1.0 24.9 18.0 3.4 4.9 NA NA
CEMEX SAB de CV 11.9 6.7 6.3 1.3 1.2 10.1 11.2 13.1 10.7 NA NA
CEMEX Latam Holdings SA 0.6 5.8 4.9 0.4 0.4 10.0 7.5 2.6 4.7 NA NA
Sum/Average 164.7 8.3 7.6 1.2 1.0 12.8 11.0 11.4 11.8 17.0 7%
Source: Bloomberg, Systematix Institutional Research

Exhibit 14: Indian Cement sector – comparative valuation

EBITDA EPS
Price Mkt. EV/Ton
System EV/EBITDA CAGR CAGR RoE (%) RoCE (%)
Company Target Cap. (USD/ton)
atix (%) (%)
Name
Rating (Rs/ FY21- FY21-
(Rs bn) FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E
share) 24E 24E
Ultratech
BUY 9,275 2,250 251 222 213 16.7 14.3 12.3 14.7 29.5 15.0 15.9 16.3 16.1 17.6 18.8
Cement
Shree Cement HOLD 29,855 1,021 277 272 265 22.2 19.3 16.8 10.6 9.7 14.8 14.7 14.5 19.6 19.3 19.1
Ambuja
BUY 500 837 247 239 229 15.9 13.8 11.7 19.7 20.5 20.8 19.7 19.3 35.0 32.1 30.6
Cements
ACC BUY 2,995 450 152 138 124 12.4 11.1 9.2 16.3 18.9 14.6 14.1 14.4 19.3 18.7 19.2

Dalmia Bharat BUY 2,615 413 160 164 122 14.4 12.6 10.7 13.4 30.8 9.2 11.2 12.8 11.1 13.1 16.0

JK Cement HOLD 3,160 252 221 224 181 16.6 15.1 13.6 9.5 10.4 19.7 19.0 17.4 11.2 11.3 10.9
The Ramco
BUY 1,205 236 180 175 161 16.1 14.0 11.2 13.4 17.5 13.1 13.5 15.7 12.9 13.8 17.2
Cements
Birla
BUY 1,685 102 99 89 79 10.0 8.4 7.0 10.3 11.5 10.5 10.8 12.5 7.7 8.3 9.7
Corporation
Coverage
5,561 198 190 172 15.5 13.6 11.6 13.5 18.6 14.7 14.9 15.4 16.6 16.8 17.7
Average
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 6
01 September 2021 Indian Cement Industry

Cement sector coverage – Investment thesis

Exhibit 15: Indian Cement Sector – Summary of our investment thesis
Company Name Investment thesis

UltraTech Cement Best placed to capture the demand uptick; initiate with BUY
 UTCEM plans to increase its grinding capacity by 19.5mtpa by FY23E and maintains Rs 100bn+ liquid reserves for acquisitions.
BUY
Consequently, we expect a sales volume CAGR of 11.4% over FY21-24E.
 It is reducing opex by a) decreasing the lead distance, b) increasing power generation through WHRS/solar plants -
TP Rs 9,275
incremental cost savings of Rs 40/ton through WHRS by FY25E and c) controlling fixed costs - at levels similar to FY19 in FY21.
 Net debt/EBITDA improved to 0.66x in FY21 vs. 3.1x in FY20. We expect the company to become cash positive in FY23E
despite the on-going capex. We expect RoE to improve to 16.3% by FY24E vs. 13.4% in FY21, while RoIC is expected to
improve to 17% vs. 10.7% in FY21.
Shree Cement Consistent performer but rich valuations
 The company has been consistent in its expansion program (capacity/sales volume CAGR of 19.2%/14.3% over FY05-21) and
HOLD the management expects to double the capacity over the next 6-7 years - while COVID-led issues have delayed this plan, we
expect SRCM to commence expansion activities in the near term.
 It is the lowest-cost cement producer in India led by its innovative/ahead of the curve initiatives. It has controlled costs via
TP Rs 29,855
higher dependence on green energy and split grinding units vs. peers and captive production of synthetic gypsum.
 We expect EBITDA CAGR of 10.6% over FY21-24E and RoIC of 41.8% in FY24E.

Ambuja Cements Gearing up for the upcycle!

 ACEM plans to reach 50mtpa capacity in the medium term through a mix of brownfield expansions (Bhatapara, Chhattisgarh
BUY & Maratha, Maharashtra plants) and debottlenecking across all plants. We expect sales volumes to grow at a CAGR of 12.6%
over CY20-23E, aiding market share gains of 50-60bps over CY20-23E.
 It is planning to improve its cost structure through the commissioning of Waste Heat Recovery Systems (WHRS), solar power
TP Rs 500
plants, coal mining from Gare-Palma IV coal block and completion of the railway siding project at Rabriyawas, Rajasthan.
 We expect EBITDA/ton of Rs 1,405 in CY23E vs. Rs 1,168/Rs 1,434 in CY20/1HCY21. We expect a RoE of 19-21% between
CY21-23E vs. 15% in CY20.
ACC Capex completion holds the key; cost-saving initiatives yielding results
 After years of slow capacity addition (4% CAGR between CY08-20), ACC aims to commission 2.7/4.8mtpa of clinker/cement
BUY
capacity in Central India by CY23E. Consequently, we expect sales volumes to grow at a 10.1% CAGR over CY20-23E.
 Initiated cost-saving measures like a) ‘Project PARVAT’ which yielded Rs 110/ton savings in CY20 & will ensure further cost-
TP Rs 2,995 savings, b) higher transaction value under the Master Supply Agreement with ACEM, leading to operating cost synergies, c)
increasing the share of premium products and d) a reduction in fixed costs.
 We expect unit EBITDA to increase to Rs 1,145 in CY23E (vs. Rs 972 in CY20; its EBITDA/ton grew at a CAGR of 14.2% over
CY18-20).
Dalmia Bharat Ambitious growth targets; aims to improve shareholder returns
 Dalmia Bharat has increased its capacity from 1.2mtpa in FY06 to 30.75mtpa in FY21 through the organic & inorganic routes.
BUY It recently announced further capacity expansion plans of 9.9mtpa, which would help in increasing its grinding capacity to
48.5mtpa by FY24E. We expect a sales volume CAGR of 12% over FY21-24E.
 In the recently announced capital allocation policy, it has indicated its plans to become a 110-130mtpa capacity company by
TP Rs 2,615
2031.
 Its return ratios have improved (RoE of 7.9% in FY21 vs. 2.1% in FY20) and we expect a further improvement to 12.6% by
FY24E. We expect its EBITDA/adjusted PAT to increase at a CAGR of 13.4%/30.8% over FY21-24E.
JK Cement Strong growth plans but valuations rich
 It plans to increase its grey cement capacity by a further 4mtpa by FY24E after the recent addition of 4.7mtpa capacity, which
HOLD
will result in a total installed grey cement capacity of 18.7mtpa and provide volume growth visibility in the medium term.
 JKCE’s presence in the white cement segment (stable margins vs. grey cement with an OPM of 25-30%) provides earnings
TP Rs 3,160
stability and sets it apart from other mid-cap companies.
 We estimate an EBITDA CAGR of 9.9% over FY21-24E and expect net debt/EBITDA to be 1.44x/1.49x/1.32x in FY22/23/24E.
Net debt/EBITDA has improved every year since FY16 (1.3x in FY21 vs. 5.7x in FY16).

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 7
01 September 2021 Indian Cement Industry

The Ramco
Makes inroads into the East, sheds its regional tag
Cements
 TRCL has diversified its presence in the Eastern market with the region now accounting for ~28% of its sales volumes. Its on-
BUY going capacity expansion should complete in 1HFY22. Sales volumes are estimated to grow at a CAGR of 14.6% over FY21-
24E with the Eastern region contributing to 34% of the volumes by FY24E vs. 28% in FY21.
 The commissioning of the WHRS, grinding capacity in Odisha and new clinker plants should improve the cost structure
TP Rs 1,205
further. The company’s gross and net debt has peaked out in FY21; we expect it to turn net cash positive in FY24E.
 We expect its EBITDA/EPS to grow at a CAGR of 13.4%/17.5% over FY21-24E.

Birla Corporation Growing scale should drive re-rating

 BCORP will expand its clinker/cement capacity by 30%/33% to 13mtpa/20.4mtpa by FY23E, which should aid volume growth.
BUY We expect a volume CAGR of 10.1% over FY21-24E. The management has set a target to increase its capacity further to
25mtpa by 2025.
 Cost-saving strategies (mining of coal through allotted blocks in e-auction, freight cost savings for its existing grinding unit in
TP Rs 1,685 Butibori, Maharashtra after the commissioning of the integrated plant at Mukutban, Maharashtra and lower dependence on
external power) should also boost profits.
 BCORP is trading at 8.4x FY23E EV/EBITDA, which is lower than the average valuation of our coverage universe and
companies with similar capacities. BCORP’s valuation multiple should re-rate gradually as the company continues with its
capacity expansion plans.
Source: Company Data, Systematix Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 8
01 September 2021 Indian Cement Industry

Coverage Operating Metrics

Exhibit 16: Financial Metrics of Coverage universe
Company P/E (x) EV/EBITDA (x) EV/Ton (USD)
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
UTCEM 62.1 40.5 32.0 26.7 22.8 26.4 20.2 16.7 14.3 12.3 299 270 251 222 213
SRCM 65.0 44.2 42.2 37.6 33.5 26.9 24.2 22.2 19.3 16.8 349 294 277 272 265
ACEM* 54.7 46.7 33.7 30.4 26.7 26.2 21.9 15.9 13.8 11.7 256 264 247 239 229
ACC* 33.4 30.9 23.1 21.2 18.4 17.0 16.0 12.4 11.1 9.2 175 158 152 138 124
TRCL 39.5 32.1 30.4 26.2 19.8 23.5 17.5 16.1 14.0 11.2 206 184 180 175 161
JKCE 52.0 34.5 31.4 27.6 25.6 22.9 17.7 16.6 15.1 13.6 241 218 221 224 181
BCORP 21.0 16.8 17.6 15.5 12.2 10.3 10.1 10.0 8.4 7.0 120 121 99 89 79
DALBHARA 189.5 45.1 35.0 27.8 20.2 21.7 15.3 14.4 12.6 10.7 234 190 160 164 122

Company ROE (%) ROCE (%) ROIC (%)

FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
UTCEM 10.0 13.4 15.0 15.9 16.3 10.8 13.9 16.1 17.6 18.8 7.6 10.7 13.5 15.2 17.0
SRCM 13.9 16.4 14.8 14.7 14.5 16.6 20.5 19.6 19.3 19.1 24.7 37.8 39.6 40.0 41.8
ACEM* 12.5 15.0 20.8 19.7 19.3 20.0 25.7 35.0 32.1 30.6 22.4 39.8 49.1 42.0 46.9
ACC* 12.3 12.1 14.6 14.1 14.4 18.1 16.2 19.3 18.7 19.2 23.6 26.2 35.1 37.3 39.7
TRCL 12.8 14.0 13.1 13.5 15.7 10.8 12.9 12.9 13.8 17.2 13.0 16.9 15.0 14.6 18.0
JKCE 16.9 21.6 19.7 19.0 17.4 9.4 11.4 11.2 11.3 10.9 11.1 13.3 13.1 12.8 12.1
BCORP 10.9 12.2 10.5 10.8 12.5 8.2 9.3 7.7 8.3 9.7 9.0 10.0 8.2 8.9 10.4
DALBHARA 1.8 7.5 9.2 11.2 12.8 4.0 12.2 11.1 13.1 16.0 4.0 11.4 12.2 14.7 17.3

Company Net Sales (Rs bn) EBITDA (Rs bn) Adjusted PAT (Rs bn)
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
UTCEM 424.3 447.3 525.1 583.0 641.4 92.5 115.7 137.2 156.0 174.7 36.4 55.8 70.7 84.9 99.0
SRCM 119.0 125.9 145.9 162.3 178.8 36.7 39.5 42.4 47.8 53.5 15.7 23.1 24.2 27.2 30.5
ACEM* 116.7 113.7 141.0 156.2 173.1 21.5 26.5 36.1 40.3 45.4 15.3 17.9 24.8 27.5 31.3
ACC* 156.6 137.8 162.4 176.4 197.0 24.1 24.8 31.1 33.9 39.0 13.6 14.7 19.7 21.4 24.7
TRCL 53.7 52.4 60.4 68.8 80.4 11.7 15.6 16.9 18.9 22.7 6.0 7.4 7.8 9.1 12.0
JKCE 58.0 66.1 76.3 84.5 93.2 12.1 15.4 16.6 18.6 20.4 4.8 7.3 8.0 9.1 9.8
BCORP 69.2 67.9 74.3 83.6 92.2 13.4 13.7 14.1 16.1 18.4 5.1 6.3 6.0 6.8 8.7
DALBHARA 96.7 105.2 117.5 132.8 154.1 20.8 27.8 29.6 34.4 40.6 2.2 9.1 11.7 14.8 20.4

Company Cement capacity (mtpa) Cement volumes (mtpa) Cement Realisation (Rs/ton)
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
UTCEM 116.8 118.8 123.5 136.3 136.3 81.0 84.8 99.5 108.4 117.4 4,233 4,751 4,893 4,991 5,091
SRCM 40.4 43.4 46.4 46.4 46.4 24.9 26.8 30.2 33.0 35.7 4,463 4,483 4,534 4,629 4,752
ACEM* 29.65 29.7 31.5 31.5 31.5 24.0 22.7 27.1 29.6 32.3 4,864 5,018 5,207 5,280 5,354
ACC* 33.4 33.4 34.8 37.4 39.6 28.9 25.5 29.2 31.0 34.1 4,709 4,843 4,979 5,078 5,180
TRCL 18.5 19.4 20.4 20.4 21.2 11.2 10.0 11.3 12.9 15.0 4,576 5,032 5,132 5,132 5,184
JKCE 14.0 14.7 14.7 14.7 18.7 8.4 10.3 11.9 12.8 13.8 4,527 4,495 4,626 4,736 4,852
BCORP 16.2 16.2 20.1 21.3 21.3 13.8 13.4 14.6 16.4 17.9 4,626 4,724 4,750 4,770 4,820
DALBHARA 26.5 30.8 36.0 36.0 48.4 19.3 20.7 22.7 25.5 29.1 4,686 4,872 5,073 5,095 5,178

Company Cement EBITDA/ton (Rs/t) EPS (Rs) Net Debt to EBITDA (x)
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
UTCEM 1,074 1,297 1,317 1,378 1,431 126.2 193.2 245.0 294.0 343.0 2.0 0.7 0.2 -0.2 -0.6
SRCM 1,453 1,466 1,390 1,434 1,486 435.2 640.8 670.4 753.5 845.3 -0.9 -1.6 -1.9 -2.1 -2.3
ACEM* 896 1,168 1,334 1,362 1,405 7.7 9.0 12.5 13.8 15.8 -2.2 -1.1 -0.9 -1.3 -1.7
ACC* 834 972 1,065 1,091 1,145 72.3 78.0 104.7 113.9 131.3 -1.8 -2.3 -2.1 -2.3 -2.4
TRCL 963 1,460 1,408 1,381 1,435 25.5 31.4 33.2 38.4 50.9 2.3 1.8 1.6 1.0 0.4
JKCE 1,242 1,322 1,247 1,296 1,328 62.7 94.6 103.8 118.2 127.3 2.2 1.3 1.4 1.5 1.3
BCORP 967 1,022 967 983 1,028 65.6 81.8 78.1 88.7 113.3 2.5 2.5 2.6 2.0 1.3
DALBHARA 1,080 1,344 1,306 1,352 1,396 11.6 48.7 62.8 79.1 109.0 1.4 0.0 0.1 0.3 0.3
Source: Systematix Institutional Research, Companies,*ACC & Ambuja are Dec-ending cos.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 9
01 September 2021 Indian Cement Industry

Investment Analysis
Demand drivers remain strong
Assessing cement demand has been a difficult task due to the lack of data points
related to housing (trend of individual houses in smaller cities and rural areas) and
commercial construction. Nonetheless, the housing sector remains the key
contributor to cement consumption growth and industry experts estimate that more
than 60% of cement is consumed by the housing sector. The infrastructure sector
consumes 23% of the industry’s production, while the industrial and commercial
construction activities utilise the rest.
Exhibit 17: Cement consumption mix

11%

29%
Rural Housing
Metro & Tier I
23%
Tier II & Tier III
Low cost housing
Infrastructure
8% Industrial & Commercial

11%
18%

Source: Systematix Institutional Research, Industry

Cement demand is directly linked to the economy and has a high correlation with GDP
growth as infrastructure investments and construction activities are major drivers of
cement demand and key components of the GDP. Rural housing, a determinant of
cement demand, depends on agriculture productivity which is also a key component
of the GDP.
Historical data suggests that cement demand in India increased at an average of 2x
GDP growth during FY81-2000 (on a low base) and cement consumption increased 5x.
Between FY01-10, the average cement consumption grew 1.55x the GDP growth rate
and cement consumption increased 2x supported by strong growth in the real estate
sector.
Between FY11-20, cement demand increased by 1x the GDP growth due to the
slowdown in the real estate sector, quantitative tapering in 2013, demonetisation in
Nov-16, implementation of RERA/GST in 2016/2017 and credit crisis in 2019. For our
analysis, we have assumed 5.5% YoY volume growth in FY17 as reflected by the
volume data of companies we have analysed (69% of the industry’s volumes).
Although the industry witnessed a deceleration in production from Dec’16 to Jun’17
as per the data published by the Office of the Economic Advisors (core industries
data), our analysis of volumes reported by the analysed companies did not reveal
volume declines for this period. In 4QFY17, the companies that we analysed reported
volume growth of 4% YoY, which was in stark contrast to the 11.9% YoY volume
decline as per the data published by the Office of the Economic Advisors.
For FY20, we have assumed industry volume growth of 1.8% YoY based on the growth
during Apr’19-Feb’20 as industry volumes got impacted in Mar’20 due to the
nationwide lockdowns.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 10
01 September 2021 Indian Cement Industry
We expect GDP/cement consumption to be at 1.2x during FY22-24E supported by the
low base of FY21 - we believe that the cement consumption decline in FY21 was lower
than the data reflected by the Office of Economic Advisors (core industries data). Core
industries data reflects a volume decline of 11.9% for FY21; however, our analysed
companies are expected to report volume growth of 1.2% YoY in the same period. We
have assumed an industry volume decline of 3.6% YoY as 55% of capacities that we
have not analysed are in the Southern and Western regions where the volume decline
was higher as per our channel checks.
Exhibit 18: GDP to cement demand growth

3
2.5
3 2.3

2 1.7
1.6 1.5
(x) 1.4
2 1.2
1.0 1.1
1

0
FY81-85

FY86-90

FY91-95

FY96-00

FY01-05

FY06-10

FY11-15

FY16-21

FY22E-24E
GDP/Cement consumption

Source: Systematix Institutional Research, Industry, RBI

We remain positive about the long-term cement demand outlook given the
government’s thrust on infrastructure and housing for all, rapid urbanisation, nuclear
family trends and a rising working-age population. Despite a per capita consumption
CAGR of 5.2% in the last 21 years, cement consumption in India remains one of the
lowest in the world. As per the UN population prospects 2019, India’s population is
projected to touch 1.64bn by 2050 vs. 1.38bn in 2020. Demand drivers for the next
few years include Pradhan Mantri Awas Yojana, Urban (PMAY-U), Pradhan Mantri
Awas Yojana Gramin (PMAY-G) and the government’s thrust on infrastructure
development - National Infrastructure Protection Plan (NIPP), Bharatmala road
projects.
Exhibit 19: Per capita consumption has increased at a CAGR of 5.2% Exhibit 20: India remains an underpenetrated market
1550-1,650

300
1,000-1,100

250
850-900

200 550-550kgs
720-770
in kgs

460-510
(kg)

150 Per capita consumption

360-410

280-320

250-300

230-280

200-250

100

50

0
2000

2018
2019
2020
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

2021

Korea

Russia
Vietnam

USA

Brazil
Indonesia

India
China

Turkey
Egypt

Per capita consumption of cement

Source: Industry, Systematix Institutional Research Source: Industry, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 11
01 September 2021 Indian Cement Industry
39% of India’s population is expected to reside in urban areas by 2030 vs. 35%
currently. The average size of Indian households declined from 5.3 members in 2011
to 4.6 members in 2019. Industry experts expect smaller households to add 6-7mn
houses every year.
With a median age of 28 years, India has one of the largest young populations in the
world. According to the UN population prospects, India’s working population (age
group of 25-64) is set to surpass China during 2030-2035 and the country will have the
largest working-age population in the world. This will further boost urbanisation and
lead to higher demand for housing and related amenities (e.g. mass transit
infrastructure).
Exhibit 21: Rapid urbanisation Exhibit 22: India’s working population expected to surpass China
1,000 909 1,000
880 893 900
900 mn.
900
800 800
700 700
600 543 600
483
(mn)

500 461 500

429
400 400

300 300
200
200
100
100
0
0

1950

1980

2010

2020

2050

2100
2015 2018 2020E 2025E
Urban Rural India USA China
Source: IMF World Economic Outlook Database, UN Report-2018 Source: UN Report-2019

Increasing incomes and affordability

India’s per capita income increased at a CAGR of 9.8% between FY12-20 (was
impacted in FY21 due to COVID-19-led issues). Interest rates on housing loans have
dropped by more than 3% in the last 6 years and the current interest rates are at
historically low levels. Rising incomes and the reduction in interest rates on housing
loans will increase the affordability of new houses.
Exhibit 23: Rising per capita income Exhibit 24: Interest rates on housing loans at historically low levels

160,000 14 21.0%
140,000 12 19.0%
10
120,000 17.0%
8
100,000 6 15.0%
(Rs)

(%)

80,000 4
13.0%
60,000 2
0 11.0%
40,000
-2 9.0%
20,000 -4
7.0%
0 -6
FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

5.0%
Mar-98
Mar-94

Mar-96

Mar-00

Mar-02

Mar-04
Jul-05
Mar-06

Mar-08

Mar-10
Jul-11
Mar-12
Nov-12
Mar-14

Mar-16

Mar-18
Nov-18
Mar-20
Nov-94
Jul-95
Nov-96
Jul-97
Nov-98
Jul-99
Nov-00
Jul-01
Nov-02
Jul-03
Nov-04

Nov-06
Jul-07
Nov-08
Jul-09
Nov-10

Jul-13
Nov-14
Jul-15
Nov-16
Jul-17

Jul-19
Nov-20
Jul-21

Per capita net income YoY chg (%) (RHS)

Source: Systematix Institutional Research, National Account Statistics Source: Systematix Institutional Research, SBI

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 12
01 September 2021 Indian Cement Industry
Increase in rural incomes
The NDA government had set an ambitious target of doubling farmers’ income by
2022 (2015 was set as the reference year). While there could be a delay in achieving
this target due to the COVID-19 pandemic, the government is committed to improving
their incomes. As per industry estimates, 29% of cement demand is being consumed
by rural housing and hence, the increase in farmer incomes will improve cement
consumption.
Exhibit 25: Rural wages increased at 8.8% CAGR in 16 years Exhibit 26: Increase in minimum support prices (MSP) for foodgrains

400 25 25

350
20 20
300
250 15 15
(Rs/day)

(%)
200

(%)
150 10 10
100
5 5
50
0 0
0
FY14
FY15
FY05
FY06
FY08
FY09
FY10
FY11
FY12
FY13

FY16
FY17
FY18
FY19
FY20
FY21

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Rural wage/day YoY chg Kharif MSF average Rabi MSP average

Source: Systematix Institutional Research, CMIE Source: Systematix Institutional Research, CMIE

India to have deficient rainfall in CY21 after 2 years of good rainfall

The India Meteorological Department (IMD) has predicted that the southwest
monsoon starting in June is expected to be normal at 91% of the Long Period Average
(LPA).
Private weather forecasting agency Skymet expects the southwest monsoon to be
94% of the LPA. The southwest monsoon had a timely onset with June rains being
100% of the LPA. However, rainfalls in July and the first fortnight of August were
93%/91% of the LPA. Rainfall between 96-104% of the LPA is considered as normal.

Exhibit 27: Rainfall expected to be lower than LPA in CY21E Exhibit 28: Good monsoon results in higher foodgrain production
120 109 109
106 15
102 102
97 95
100 93 91 91 10
88 86
5
80
0
(%)

(%)

60 -5
-10
40
-15
20 -20

0 -25
FY10

FY15
FY08

FY09

FY11

FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20

FY21
CY21E
CY12

CY17
CY10

CY11

CY13

CY14

CY15

CY16

CY18

CY19

CY20

Rainfall % of LPA Rainfall deviation from LPA Foodgrain production yoy

Source: Systematix Institutional Research, Department of Agriculture Source: Systematix Institutional Research, IMD

‘Housing for All’/Affordable housing schemes

The Central government’s ambitious project ‘Housing for All’ was launched under two
different schemes: Pradhan Mantri Awas Yojana, Gramin (PMAY-G) and Pradhan
Mantri Awas Yojana, Urban (PMAY-U).

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 13
01 September 2021 Indian Cement Industry
Tax benefits for affordable housing projects extended till FY22
The Ministry of Housing and Urban Affairs in Nov’17 had estimated that the urban
housing shortfall in the affordable housing segment was 10mn units. Of the total
housing shortage, 95% belonged to the economically weaker (EWS) and low income
(LIG) categories.
The finance minister had allowed an additional interest deduction of Rs 0.15mn for
buying a house under the affordable housing segment in the Union Budget 2019. This
scheme was extended in the Union Budget 2020 and further in the Union Budget
2021. This additional interest exemption is allowed for first-time buyers of a property
with a stamp value of up to Rs 4.5mn. It will support housing demand in the Tier2/3
cities and rural areas.
Exhibit 29: State-wise housing shortages in the affordable housing segment

18
16
14
12
10
(%)

8
6
4
2
0
Tamil Nadu

Meghalaya
Delhi
Bihar

Goa
Kerala

Odisha
Punjab
Karnataka

Nagaland

Manipur
West Bengal

Jharkhand

Chhattisgarh

Uttarakhand
Uttar Pradesh

Gujarat

Arunachal Pradesh
J&K

Sikkim
Maharashtra

Madhya Pardesh

Haryana

Puducherry

Chandigarh
Mizoram
Rajasthan

Assam

Dadra & Haveli

Tripura

Daman & Diu

Lakshwadeep
Andhra Pradesh

Himachal Pradesh
Source: Systematix Institutional Research, Ministry of Housing & Urban Affairs

Housing construction under PMAY-U

Under PMAY-U, validated demand for housing units was fixed at 11.2mn. Out of the
validated houses, 10.9mn have been sanctioned of which, 7mn have been grounded.
Out of the grounded houses, 4.1mn have been completed.
As per the estimates by the Ministry of Housing & Urban Affairs, 90.8mt of cement
was to be consumed for the sanctioned houses, out of which, 40.8mt had been
consumed till Dec-20. We believe that cement consumption under PMAY-U could be
15-18mt every year for the next 4-5 years.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 14
01 September 2021 Indian Cement Industry
Exhibit 30: Completion of housing units under PMAY-U Exhibit 31: Region-wise housing construction expected under
PMAY-U
8
7%
7 4%
22%
6
North
(mn houses)

5
East
4
West
3
South
2
37% 13% North-East
1
Central
0
FY17 FY18 FY19 FY20 FY21 FY22 &
beyond
Sanctioned Grounded Completed 17%

Source: Systematix Institutional Research, Ministry of Housing & Urban Affairs Source: Systematix Institutional Research, Ministry of Housing & Urban Affairs

Exhibit 32: Allocation under PMAY-U

250

200

150
(Rs bn)

100

50

0
FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE

PMAY U

Source: Systematix Institutional Research, Budget Documents

Housing construction under PMAY-G

Under PMAY-G, the government had aimed to provide 29.5mn houses in the rural
areas by 2022. The immediate objective of this program was to cover 10mn
households living in kutcha/dilapidated houses during 2016-19, which was achieved
as per the schedule.
Under this scheme, 19.3mn housing units were sanctioned till FY21 and out of that,
13.8mn units had been completed. The pace of housing construction got impacted in
FY21 due to the COVID-19 pandemic and as per the data by the Ministry of Rural
Housing, 0.62mn housing units were completed in FY21 vs. 3.99mn units in FY20. The
aim is to construct 4.41mn housing units in FY22.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 15
01 September 2021 Indian Cement Industry
Exhibit 33: Completion of housing units under PMAY-G Exhibit 34: Region-wise housing construction completed under
PMAY-G
6
South, 53.4% All-India, 68.7%
5

4
(mn houses)

West, 57.8% North East,

3 44.8%

0 North, 79.1% East, 72.4%

FY17 FY18 FY19 FY20 FY21 FY22*

Beneficiary registered House sanctioned Completed/FY22- target Central, 68.8%

Source: Systematix Institutional Research, Ministry of Rural Development Source: Systematix Institutional Research, Ministry of Rural Development

Exhibit 35: Allocation under PMAY-G

250

200

150
(Rs bn)

100

50

0
FY16 FY17 FY18 FY19 FY20 FY21RE FY22BE

PMAY G

Source: Systematix Institutional Research, Budget Documents

Organised real estate has also picked up recently

In the last few years, new launches in Tier I cities (Mumbai, Pune, Bengaluru, Chennai,
Hyderabad, Ahmedabad, Chennai and Pune) have been lower than the total sales
volumes as per the data compiled by Knight Frank. This has led to a reduction in
inventories in these cities.
Combined inventories in these cities fell to 31/32 months in FY19/20 vs. 39 months in
FY17/FY18. In FY21 too, sales in these cities were 5% higher than the new launches.
However, inventory months look higher due to the COVID-19 impact. Sales in these
cities in 2HCY20 were 60% above 1HCY20. In 1HCY21, sales in these cities were up
67% YoY with a 1% YoY drop in housing inventory.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 16
01 September 2021 Indian Cement Industry
Exhibit 36: Residential sales slowly inching towards pre-COVID levels Exhibit 37: Leading to a decline in inventories in the last few years

140,000 8 45

120,000 7 40

6 35
100,000
(no. of units)

5 30
80,000

(months)
4 25
60,000 20
3
40,000 15
2
20,000 10
1
5
0 -
1HCY18 2HCY18 1HCY19 2HCY19 1HCY20 2HCY20 1HCY21 0

FY18
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY19

FY20

FY21*
Launches Sales Qtrs. to sell inventory---RHS

Source: Systematix Institutional Research, Knight Frank Source: Systematix Institutional Research, Industry, *FY21 inventory looks higher due
to the COVID-19 impact

Impetus on infrastructure development

Infrastructure development is the key to the GDP growth of an economy. The
government’s increased thrust on infrastructure development should support cement
consumption going forward. The expenditure by the Central and State governments
on infrastructure development schemes (Housing, Transport, Urban/Rural
development, Irrigation, Railways and Water Supply & Sanitation) is expected to
increase 14.6% YoY in FY22E.
Exhibit 38: Spending by the Centre and States on infrastructure schemes to increase 15%
YoY

1,400 35

1,200 30

1,000 25

800 20
(Rs bn)

(%)
600 15

400 10

200 5

0 0
FY17 FY18 FY19 FY20 FY21RE FY22BE

Allocation for MoRTH YoY chg

Source: Systematix Institutional Research, Budget Documents

The National Infrastructure Pipeline (NIP) envisages the execution of various

infrastructure projects at an estimated investment of Rs 111trn. This would require
almost doubling the pace of infrastructure investment. A large part of this project is
towards transportation, energy/power and urban infrastructure.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 17
01 September 2021 Indian Cement Industry
Exhibit 39: Sector-wise investment proposed under NIP
Power
2.8%
1.5% 3.5% 12.7% Renewable Energy
7.0% Atomic energy
Petroleum & Natural Gas
8.4% Roads
8.0%
Railways
1.4% Ports
1.7%
2.8% Airports
Urban
Digital communication
Irrigation
18.3%
17.2% Rural infrastructure
Agriculture & food processing
1.3% Social Infrastructure
1.1% 12.3%
Industrial Infrastructure
Source: Systematix Institutional Research, Industry

Proposed investments under the NIP require almost doubling the pace of
infrastructure investment. The government release also suggests an active monitoring
mechanism to ensure timely implementation of the projects. It could boost
construction and cement demand over the medium term.
Exhibit 40: Average investment in infrastructure spending should Exhibit 41: Construction activity across sectors
increase 2x over the FY13-19E average
20 120%
100%
18 100%
16 70%
80%
14 60% 60%
50%
(Rs lakh crore)

60%
12 42% 42%
40% 30%
10 20%
20% 10% 10%
8
6 0%

Power-hydel
Urban infrastructure
Power-nuclear
Power-thermal

Railways
Power-Gas

Telecom

Airports

Irrigation

Roads
Ports
4
2
0
FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20-25E
average
Centre State Private

Source: Systematix Institutional Research, Department of Economic Affairs Source: Systematix Institutional Research, Industry

Execution to be a focus area in road construction

The government has remained focused on improving the road infrastructure. The
construction of national highways increased at a CAGR of 20% over FY15-21E and the
pace of national highway construction increased to 36 days in FY21 vs. 12 days in
FY15. The Ministry of Road, Transport and Highways (MoRTH) has set a target to
construct 40kms national highways per day in FY22.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 18
01 September 2021 Indian Cement Industry
Exhibit 42: Pace of national highway construction increasing Exhibit 43: Allocation for road development increased by 16% for
FY22

16,000 45 1,400 35
14,000 40
1,200 30
12,000 35
30 1,000 25
10,000
25

(Km)
(km)

800 20

(Rs bn)
8,000

(%)
20
6,000 600 15
15
4,000 10 400 10
2,000 5 200 5
0 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E 0 0
FY17 FY18 FY19 FY20 FY21RE FY22BE
Target construction (km) Length constructed (km)
Construction/day (km) Allocation for MoRTH YoY chg

Source: Systematix Institutional Research, MoRTH Source: Systematix Institutional Research, Union Budget Documents

Development of Airports and Metros

In April’17, the Central government launched UDAN (Ude Desh ka Aam Naagrik), a
regional airport development scheme aimed at improving the connectivity to remote
areas of the country and making air travel affordable for everyone. The idea was to
develop 100 new airports in India, out of which 70 would be developed at new
locations while the remaining would lift the burden on the existing ones in big cities.
These upcoming airports in India would fuel economic development in tier-2 and tier-
3 cities. The development of Metros would also increase cement consumption.
Exhibit 44: Upcoming airports in India
Sindhudurg Airport Navi Mumbai International Airport
Hirasar Airport Sabarimala Airport
Rourkela Airport Kannur International Airport
Durgapur Airport New Vijayawada Airport
Jewar Airport Sriperumbudur Airport

Mopa Airport Itanagar Airport

Source: Systematix Institutional Research, Industry

Exhibit 45: Metro lines planned in India

Project Cost
Project Name State Network (km) Deadline
(Rs bn)
Ahmedabad Metro II Gujarat 61.8 2025 162
Dholera Metro Gujarat 100 2030 70
Nasik Maharashtra 32 2023 21
Delhi Metrolite Delhi-NCR 40.9 Pending 56
Mumbai Metro Maharashtra 87.6 2025 331
Meerut Metro Uttar Pradesh 20 2024 115
Nagpur Metro II Maharashtra 48.3 2025 112
Nagpur Broad Gauge Metro Maharashtra 268.6 2024 4
Surat Metro Gujarat 40.4 2024 108
Thane Metro Maharashtra 29 2024 131
Total 728.5 1,111
Source: Systematix Institutional Research, Industry Reports

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 19
01 September 2021 Indian Cement Industry

Regional Dynamics
India (production capacity of 531 mtpa in FY21) is the second-largest cement
producer in the world after China (production capacity of 1,830 mtpa in CY20). Other
major producers have an output of 40-100mtpa each.
Exhibit 46: India’s regional markets on par with leading countries

Source: Systematix Institutional Research, UltraTech presentation, maps not measured to the scale

The Indian cement industry has evolved in clusters given the location of limestone
reserves in some states - a significant portion of plants are located in these clusters.
The Indian cement industry is bifurcated in five different regions: Northern (20% of
grinding capacity and 24% of clinker capacity), Central (13% of grinding capacity and
12% of clinker capacity), Eastern (20% of grinding capacity and 13% of clinker
capacity), Western (13% of grinding capacity and 12% of clinker capacity) and
Southern (33% of grinding capacity and 39% of clinker capacity). Cement is a low-
value high-volume product and has limited international trade.
Northern region: It has two clinker clusters - Rajasthan and Himachal Pradesh.
Rajasthan players cater to their markets of Punjab, NCR, West Uttar Pradesh,
Uttarakhand and Haryana. Shree and UltraTech are the major players in Rajasthan.
Exhibit 47: Break-up of grinding units in the Northern market Exhibit 48: Clinker clusters: Rajasthan and Haryana

4% 0% 0% 0%
4%
14%
5%
Rajasthan Rajasthan
11% Himachal Pradesh Himachal Pradesh
Haryana Haryana
Punjab Punjab
Uttarakhand Uttarakhand
Jammu & Kashmir Jammu & Kashmir
Delhi Delhi
76%
86%

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Central region: It has only one clinker cluster in Satna. Western UP is catered by
Rajasthan players. Eastern and Central UP are catered by the Satna cluster; Rajasthan
players have started supplying in this market, primarily in Central UP (Kanpur and
Lucknow). ACC is the brand leader in this market and commands Rs 20-25/bag
premium over its nearest competitor. Satna players cater to the MP market.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 20
01 September 2021 Indian Cement Industry
Exhibit 49: Break-up of grinding units in the Central region Exhibit 50: Madhya Pradesh has clinker plants in the Central region

5%

40%

Uttar Pradesh Uttar Pradesh

Madhya Pradesh Madhya Pradesh

60%

95%

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry
Eastern region: The clinker clusters (including the North East) are in Baloda Bazar,
Chhattisgarh, Rajgangpur and Bargarh in Odisha and Meghalaya in the North East. In
West Bengal, there is no clinker unit and this market is served from Odisha,
Chhattisgarh and Chaibasa (Jharkhand). TRCL caters to this market from
Jayanthipuarm, AP (it has a grinding unit in Kolaghat, West Bengal).
Bihar has one clinker plant (Kalyanpur Cement which has been acquired by Dalmia
Bharat). In the Bihar market, Nuvoco’s Concreto brand (slag cement) commands the
highest premium. This market is catered by the Satna cluster, Chhattisgarh or Odisha
players. The Jharkhand market is primarily catered by the players from Jharkhand,
Odisha and Chhattisgarh.
The Odisha market is catered by Odisha, Chhattisgarh and AP-based players (primarily
in South and Coastal Odisha). Chhattisgarh-based players like JK Lakshmi, Shree and
Emami have set up grinding units in the state. Ramco Cement (South-based player)
has set up a grinding unit to serve this market more efficiently. South Odisha (Ganjam,
Gajptai, Malkangiri, Navrangpur, Naigarha) is primarily fed by AP players (200-250kms
distance). Coastal Odisha (Naigarh, Bhubaneswar, Puri, Cuttack, Kendrapada,
Jagatsingpur) is also fed by Vizag players (distance 300-500kms). Western Odisha
(Shambhalpur, Sundargarh, Bargarh) is served by Chhattisgarh players. OCL has its
plant in Sudargarh. UltraTech serves this market through its plants in Raipur, AP and
Jharsuguda. Penna Cement has set up a packaging/blending unit in Gopalpur, Ganjam
district and brings cement by the sea route. Other AP players (Mahashakti, Ramco,
Priya, KCP, Sagar) feed this market by Road.
Exhibit 51: Break-up of the grinding units in the Eastern region Exhibit 52: Chhattisgarh is the major clinker source for the Eastern
players; Meghalaya caters to the North East

4% 10% 3% 1% 4%
4%
10%

12% Bihar Bihar

19% 9%
Jharkhand Jharkhand
Chhattisgarh 0% Chhattisgarh
West Bengal West Bengal
Odisha Odisha
Meghalaya Meghalaya
Assam Assam
28%
23%
73%

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 21
01 September 2021 Indian Cement Industry
Western region: This region has two clinker clusters - Kutch and Kodinar, Gujarat and
Chandrapur, Maharashtra. 20-22% of the Gujarat demand is catered by Rajasthan
players based out of Chittorgarh - JK Lakshmi, Wonder Cement, JK Cement and
Nuvoco. Key players in Gujarat are Ambuja Cements, UltraTech and Sanghi Industries.
UltraTech has a 40% market share in Gujarat. Ahmedabad is the major consumption
centre of Gujarat which is served by Kodinar and Kutch via road. Few of the Southern
brands (Birla A-1, Coromandel, Bharthi, JSW and ACC by Maharashtra) also cater to
the Surat market by Rail (4-5% of total volumes).
In Maharashtra, the major consumption centres are Pune and Mumbai. Mumbai is
predominantly a bulk cement market and is served by players from Gujarat and
Karnataka. Ambuja Cements and Sanghi Industries serve Mumbai by the sea route.
ACC serves Mumbai through the Gulbarga unit. Pune markets are mostly dependent
on Karnataka. The Vidharba region (Nagpur and Amravati) is catered by Chandrapur
and Chhattisgarh players.
Exhibit 53: Grinding units in the Western region Exhibit 54: Break-up of clinker units in the Western region

33%

48% Gujarat Gujarat

52% Maharashtra Maharashtra

67%

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Southern region: It has four clinker clusters - Nalgonda in Telangana, Yerraguntla in

Andhra Pradesh, Gulbarga in Karnataka and Ariyalur in Tamil Nadu. Andhra Pradesh
and Telangana have an installed capacity of 89mn tons with a demand of 31/24.5mn
tons in FY19/20; these two states witness the highest fluctuation in prices. From
Andhra Pradesh, cement is sent to Odisha, mostly to South and Coastal Odisha.
The Tamil Nadu market is catered by the Ariyalur and Yerraguntla clusters. Chennai is
the largest market.
In Karnataka, Bangalore is the largest consumption centre which is served by Gulbarga
and Yerraguntla players. Karnataka players cater to Maharashtra; JK Cement sells
60%+ of its cement into Maharashtra. Other players like ACC, Vicat, UltraTech and
Kesoram also supply more to the Maharashtra markets.
Kerala does not have any clinker line and is served by Ariyalur players. UltraTech
Cement, Ambuja Cements, Zuari Cements, Penna Cement and Malabar Cements
Limited have packaging units at Kochi to serve the Kerala market.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 22
01 September 2021 Indian Cement Industry
Exhibit 55: Break-up of grinding units in the Southern region Exhibit 56: Break-up of clinker units in the Southern region

24%
27%

Andhra Pradesh Andhra Pradesh

Tamilnadu Tamilnadu
0%
52% Kerala Kerala
0% 55%
Karnataka Karnataka

24% 18%

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Inter-regional movement of cement: The Northern and Southern regions are net
importers of cement while the Eastern, Western and Central regions are net receiving
states from these two regions. We estimate the net outflow of cement from the
Northern/Southern regions at 18.6mt/19.2mt while the net inflow in the
Eastern/Western/Central markets at 18.4mt/15.4mt/4.3mt in FY21.
Exhibit 57: Eastern, Western and Central regions are net receivers of cement
25
20
15
10
5
(mt)

0
-5
-10
-15
-20
-25
North East West Central South
Source: Systematix Institutional Research, Industry

The Central and Eastern regions have lower per capita consumption of cement
Despite higher cement consumption in the last few years, the per capita consumption
of cement remains lower than the national average consumption in the Eastern and
Central regions. Between FY11-19, the average cement consumption likely grew at a
CAGR of 8% in the Eastern region vs. the national average growth of 6%. The Central
region may surprise positively in terms of demand growth as it has the lowest per
capita cement consumption, followed by the Eastern region.
Exhibit 58: Per capita consumption and housing shortage estimates
Macro-Economic- potential North Central East* West South India
Rural population (FY20E) 67% 75% 77% 53% 54% 67%
Per capita consumption (kg) FY20E 231 173 203 273 263 227
Housing shortage (mn)- FY20E 10 8 9 7 12 50
Road density (kms)- per lakh people 294 244 307 469 401 358
Power density (kwh/capita) 1233 700 820 1758 1461 1181
Source: Systematix Institutional Research, UltraTech presentation, *excluding North East

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 23
01 September 2021 Indian Cement Industry

Capacity additions to continue

Cement manufacturers have consistently added capacities despite lower capacity
utilisation and a fall in the return ratios. Their profitability had increased substantially
in FY07-08 after average retail prices increased at a CAGR of 18% between FY06-08.
The average RoE of cement firms reached 30% in FY08 vs. 10.5% in FY06, luring them
to increase capacities in the hope of riding the infrastructure boom in the country.
The huge investments in the cement industry led to the commissioning of 88mt of
clinker capacity and 156mt of grinding capacity between FY05-11, representing a
capacity CAGR of 12.2%. In the same period, demand increased at a CAGR of 9.6%,
which led to a fall in the industry’s capacity utilisation (average capacity utilisation
declined to 73.5% in FY11 from 88.3% in FY06).
The capacity additions have continued in the industry led by cement manufacturers’
intention to gain market share, lower working capital requirements, lower capex
requirements for brownfield expansions vs. greenfield capacities, state incentives,
free cash flow generation and availability of limestone mines. However, these
capacity additions have restricted the pricing power of the industry.
Exhibit 59: Significant capacity additions between FY06-20… Exhibit 60: …led to a fall in capacity utilisation
120
160 12
110
140
10
100
120
8 90
100
(mtpa)

(%)

80
(%)

80 6
60 70
4
40 60
2 50
20
0 0 40

FY21E
FY19
FY20
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY01-05 FY06-10 FY11-15 FY16-20 FY21-24E

Capacity additions CAGR (RHS) North East West Central South

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 61: 7mtpa grinding capacity addition planned in the Exhibit 62: 7mtpa clinker capacity addition planned in the Northern
Northern region between FY21-24E region between FY21-24E
15 4

10 3
5
(mtpa)

3
0
2
(mtpa)

-5
-10 2
Mangalam Cement

Wonder Cement
Binani Cement

JK Cement
UltraTech Cement

Ambuja Cements

JK Lakshmi

Shree Cement
JP Associates

Nuvoco Vistas
Birla Corp

0
UltraTech Ambuja JK Lakshmi Mangalam Nuvoco Vistas
FY11-21 FY21-24E Cement Cements Cement
Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 24
01 September 2021 Indian Cement Industry
Exhibit 63: 16mtpa grinding capacity additions planned in the Exhibit 64: 13mtpa clinker capacity additions planned in the Central
Central region between FY21-24E region between FY21-24E
25 7
20
6
15
(mtpa)

10 5
5
4

(mtpa)
0
-5 3
Century Textiles

KJS Cement
ACC

Birla Corp

Shree Cement
Heidelberg

Wonder Cement

Sagar Cement
UltraTech Cement

Mangalam Cement

Prism Johnson
JP Associates

JK Cement

0
ACC UltraTech JK Cement Sagar Cement KJS Cement
FY11-21 FY21-24E Cement
Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 65: 25.3mtpa grinding capacity additions planned in the Exhibit 66: 13.4mtpa clinker capacity additions planned in the
Eastern region between FY21-24E Eastern region between FY21-24E
20 7
15
6
10
(mtpa)

5 5
0
4
(mtpa)

-5
-10
SiddhiVinayak…

3
JSW Cement
JP Associates
ACC

Sagar Cement
JK Lakshmi

Lafarge
Birla Corp
Century Textiles

OCL India
Shree Cement

Star Cement
Dalmia Bharat

Ramco Cements
Ambuja Cements
UltraTech Cement

Kalyanpur Cement

Meghalaya Cement

Emami Cement

0
Dalmia UltraTech JSW Cement Shree Cement Star Cement
FY11-21 FY21-24E Bharat* Cement
Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry; *Dalmia has commissioned
3.1mtpa capacity in Odisha during FY21, FY21-24E includes North East too

Exhibit 67: 10mtpa grinding capacity additions planned in the Exhibit 68: 8.7mtpa clinker capacity additions planned in the
Western region between FY21-24E Western region between FY21-24E
20 4
15
3
10
(mtpa)

5 3
0
2
(mtpa)

-5
-10 2
Chettinad Cement

Penna Cement
Wonder Cement
Dalmia Bharat

Zuari Industries
JK Cement
JK Lakshmi

ABG
JSW Cement

Murli Industries
Birla Corp
Century Textiles

Ambuja Cements

Heidelberg
JP Associates
UltraTech Cement

Sanghi Industries

0
Birla Corp Dalmia Bharat* Sanghi Industries

FY11-21 FY21-24E Birla Corp Dalmia Bharat* Sanghi Industries

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry; *includes Murli Industries

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 25
01 September 2021 Indian Cement Industry
Exhibit 69: 7.5mtpa grinding capacity additions planned in the Exhibit 70: 5.4mtpa clinker capacity additions planned in the
Southern region between FY21-24E Southern region between FY21-24E
4
9
8 4
7
6 3
5
4 3
3
(mtpa)

(mtpa)
2 2
1
0 2
Chettinad Cement
Dalmia Bharat

Penna Cement
KCP
JSW Cement

Ramco Cement

Shree Cement

NCL Industries
Sagar Cement
JP Associates

Orient Cement

Anjani Portland
UltraTech Cement
Andhra Cements

My Home Industries

Bharthi Cement
1
1
0
Ramco Cement Dalmia Bharat

FY11-21 FY21-24E Ramco Cement Dalmia Bharat

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

The zeal to expand capacities to continue

While capacity expansion in the sector is likely to continue, the pace of expansion will
be a key monitorable. Cement manufacturers in the Northern, Central and Gujarat
regions may consider capacity additions given the improved profitability and capacity
utilisation over the last two years. Capacity expansion is likely in the Eastern region
too as cement firms operated at a clinker utilisation of 90%+ in 4QFY22 and a few of
them faced clinker shortage to meet demand. Apart from the orders placed for
announced capacities, many companies have obtained Environmental Clearances
(ECs) for expansions. Amongst the bigger players, Dalmia Bharat aspires to be a pan-
India player in the medium term; its installed capacity is set to increase to 48.5mtpa
by FY24E from 30.75mtpa currently and it aims to reach 110-130mtpa by 2031. Shree
Cement’s capacity expansion plans have been delayed due to COVID-19-led issues.
Exhibit 71: Regional break-up of ECs received Exhibit 72: Dalmia can be the new entrant in the Northern region
100 16
90 14
80 12
70 10
(mt)

60 8
6
(mt)

50
4
40
2
30
0
20
Mangalam Cement

Wonder Cement
Dalmia Bharat

JK Lakshmi
Shree Cement

Birla Corporation

Nuvoco Vistas
UltraTech Cement

Marwar Cement

10
0
North Central East West South

North Central East West South

Source: Systematix Institutional Research, Industry, *based on clinker Source: Systematix Institutional Research, Industry
capacities for which orders have not been placed

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 26
01 September 2021 Indian Cement Industry
Exhibit 73: JK Cement announced its entry in the Central region; Exhibit 74: The Eastern region may continue to see capacity
Dalmia could be another new entrant additions
4 6
4
3 5
3 4
(mt)

(mt)
3
2
1 2
1
1
0
UltraTech Cement

KJS
Dalmia Bharat

Talavadi Cement

Revati Cement
JK Cement

Magic Cement
Springway Mining

Sanghi Infrastructure 0

Nuvoco Vistsa
UltraTech Cement

JK Lakshmi
Ambuja Cement

Shree Cement

Dalmia Bharat

JSW Cement

TNE Cement (NE)

SKS Cement
Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 75: Shree Cement may consider setting up a clinker unit in Exhibit 76: The Southern market will remain the most fragmented
the Western region
4 45
40
3 35
30
3 25
(mt)

20
2 15
(mt)

10
2 5
0

Deccan Cement
Shree Cement

JSW Cement

Ramco Cement
Dalmia Bharat

Nuvoco Vistsa

Orient Cement

Sagar Cement

Other players
UltraTech Cement

India Cements
1

0
Ambuja Cement ACC Shree Cement
Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 27
01 September 2021 Indian Cement Industry

Current limestone reserves, acquired mines through auctions to support

capacity expansion
Limestone mines are allotted through e-auctions since Jan’15. The prices of these
mines are fixed as a percentage of prevalent IBM (Indian Bureau of Mines) prices at
that time. A few mines were bid at much higher prices, indicating scarcity of mines in
those areas. The companies have won 29.7bn tons of limestone reserves. The cost of
production through these mines is likely to be high, which should support cement
prices when production starts and thereby benefit existing players.
Exhibit 77: Limestone mines acquired through auctions
Final Bid (%) of
Company State Reserves (mt)
IBM price
Penna Cements Andhra Pradesh 26.7 8.1
Sree Jayajothi Cements Pvt Ltd Andhra Pradesh 9.0 10.6
Sree Jayajothi Cements Pvt Ltd Andhra Pradesh 1.7 10.7
Adani Cementation Ltd Andhra Pradesh 92.2 13.4
Shree Cement Chhattisgarh 155.0 59.0
Century Cement Chhattisgarh 67.0 10.2
Dalmia Bharat Chhattisgarh 215.0 96.2
UltraTech Cement Chhattisgarh 124.0 138.3
Shree Cement Gujarat 301.5 20.0
Adani Cementation Gujarat 325.0 30.1
JSW Cement Gujarat 125.0 35.0
Burnpur Cement Jharkhand 0.4 12.0
Burnpur Cement Jharkhand 0.7 12.0
UltraTech Cement Ltd Madhya Pradesh 62.0 77.1
Digiana Industries Pvt Ltd Madhya Pradesh 2.8 21.1
Digiana Industries Pvt Ltd Madhya Pradesh 1.7 25.1
Ambuja Cements Ltd Maharashtra 42.1 125.1
Dalmia Bharat Maharashtra 43.4 5.2
Dalmia Bharat Odisha 98.7 12.1
Shiva Cements Ltd Odisha 47.3 25.6
Emami Cement Rajasthan 168.8 60.1
Dalmia Bharat Rajasthan 174.5 48.1
Emami Cement Rajasthan 127.0 67.9
JSW Cement Ltd Rajasthan 199.2 41.6
JSW Cement Ltd Rajasthan 205.5 60.1
Shree Cement Ltd Rajasthan 209.3 10.4
Adani Cementation Ltd Rajasthan 142.6 24.5
Sigma Minerals Ltd Rajasthan 10.4 25.6
Source: Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 28
01 September 2021 Indian Cement Industry
Limestone availability highest in the Southern and lowest in the Central region
The total cement grade limestone resources, as compiled by the Indian Bureau of
Mines (IBM), Government of India, was 2032.2bn tons, of which, 8% was placed under
the reserves category. Grade-wise, the cement grade had the leading share (70%),
followed by unclassified grades. 86% of the total cement grade limestone resources
are concentrated in eight states. Karnataka is the leading state with 27% of the total
resources, followed by Andhra Pradesh and Rajasthan (12% each), Gujarat (10%),
Meghalaya (9%), Telangana (6%), Chhattisgarh and Madhya Pradesh (5% each).
The limestone deposits located and explored in Jammu and Kashmir, Himachal
Pradesh, Uttarakhand and the North-Eastern states of the Himalayan region are
difficult to exploit because of the difficult hilly terrain and inaccessibility. Though
substantial reserves of cement grade limestone deposits are available in these states,
large scale mining constraints like unstable hill slopes and a fragile eco-system, high
seismicity of the regions, procurement of fuel and other raw materials from different
states at higher transport costs imply higher production costs.
Exhibit 78: The Southern region has the highest limestone availability
60

48.4
50 44.7

40
(%)

30
23.8
20 17.1
10.4 10.6 11.9
10 7.9 7.2 7.3
4.8 5.9

0
North Central East North East West South

Limestone reserves Limestone reserves (ex-inferred)

Source: Systematix Institutional Research, Indian Bureau of Mines Yearbook 2017

New entrants strive to survive

Better profitability enjoyed by cement manufacturers in FY08-09 attracted many new
entrants in the cement industry. However, few faced difficulties in surviving in the
long run, given a) the challenges in ramping up production - Murli Industries and ABG
Cement and b) Group level debt - Reliance Cement, Emami Cement.
Exhibit 79: Status of new entrants into the cement industry
Company Region Current Capacity-(mt) Comments
Murli Industries West 3.0 Difficulties in production ramp-up, has been acquired by Dalmia Bharat.
Vadraj Cement West 5.8 Difficulties in production ramp-up, group-level debt.
Clinker capacity of 2.2mt as of now, feeds grinding unit through
JSW Cement South/West/East 13.9
imported clinker too.
Wonder Cement North 13.0 Has done extremely well in the Northern markets.
Reliance Cement Central/West 5.5 Group-level debt led to sale of cement business.
Started with 2.4mt capacity, acquired cement assets of Lafarge in India
Nirma (Nuvoco Vista) North 23.4
and Emami Cement.
Emami Cement East 8.8 Group-level debt led to sale of cement business.
Source: Systematix Institutional Research, Indian Bureau of Mines Yearbook 2017

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 29
01 September 2021 Indian Cement Industry
M&A activities have picked up pace over the last 8 years
The challenges faced by new entrants and the aggressive behavior of few players (JP
group increased its capacity by 8x to 33.5mtpa from 4mtpa over 13 years) has led to
increased merger & acquisition (M&A) activities in the cement sector over the last
eight years. Further, Lafarge had to sell its capacities after its global merger with the
Holcim Group. The cement assets of Century Textiles were merged with UltraTech.
Exhibit 80: Status of new entrants in the cement industry
Company/plants acquired Acquirer Region Capacity (mt) EV/ton (USD) Year
JP group UltraTech West 4.8 125 2013
JP group Dalmia East 2.1 90 2014
JP group Shree Cement North 1.5 40 2014
BMM Sagar Cement South 1.0 90 2014
OCL India Dalmia East 6.7 110 2015
Reliance Cement Birla Corp Central/West 5.5 130 2016
JP group UltraTech Central/North/South 21.2 113 2016
Lafarge Nirma North/East 11.0 117 2016
Kalyanpur Cement Dalmia East 1.1 50 2018
Century Textiles UltraTech East/West/Central 13.4 96 2018
Binani Cement UltraTech North 8.3 140 2018
Murli Industries Dalmia West 3.0 38 2019
Emami Cement Nuvoco Vistas (Nirma earlier) East 8.3 90 2020
Source: Systematix Institutional Research, Industry

M&A activities led to increased consolidation in a few regions

M&A activities in the sector have led to increased consolidation (the capacity share of
top-5 players has increased) in the Northern, Central and Eastern regions over the last
few years. The acquisition of JP Group’s cement plants and the cement assets of
Century Textiles helped UltraTech become the largest player in the Northern, Central
and Southern regions. This also led to increased consolidation in the Northern and
Central regions over the last few years. The capacity share of the top-5 players
increased in the Eastern region in FY21 after the completion of the sale of Emami
Cement. The southern region remains the most fragmented market with the share of
top-5 players at only 43% in FY21.
Exhibit 81: UltraTech and Shree are the two largest players in Exhibit 82: The share of top-5 players in the Northern region has
the Northern region increased consistently

30 75

25
70
20

15 65
(mt)

(%)

10
60
5

0 55
FY13

FY14
FY11

FY12

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

-5
50
ACC Binani UltraTech FY15 FY16 FY17 FY18 FY19 FY20 FY21
Ambuja JK Lakshmi JK Cement
Shree Cement Wonder Cement North

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 30
01 September 2021 Indian Cement Industry
nd
Exhibit 83: UltraTech is the largest player in the Central region Exhibit 84: The Central region is the 2 most consolidated region in
terms of installed capacities (based on top 5 players’ capacities)

30 80

25 75
20
70
15
(mtpa)

(%)
65
10
60
5
55
0
FY16
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
-5 50
FY15 FY16 FY17 FY18 FY19 FY20 FY21
ACC Birla Corp UltraTech JP Group
Prism Heidelberg Reliance Century Central

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 85: UltraTech, Dalmia and Nuvoco Vistas are the top-3 Exhibit 86: Capacity share of top-5 players increased after Emami
players in the Eastern region Cement’s acquisition
30 75

25
70
20

15
(mtpa)

65
(%)

10
60
5

0
55
FY23E
FY22E

FY24E
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

-5
50
ACC UltraTech Ambuja FY15 FY16 FY17 FY18 FY19 FY20 FY21
Nuvoco Vista/Lafarge OCL Dalmia
Shree Emami East

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 87: UltraTech is 3.1x bigger than the nearest competitor Exhibit 88: Top-3 players have 57% capacity share, capacity share
in the Western region of the top-5 players has declined

35 80

30 75
25
70
20
(mtpa)

(%)

15 65
10
60
5
0 55
FY16
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

-5 50
FY15 FY16 FY17 FY18 FY19 FY20 FY21
UltraTech ACC Century Ambuja
Sanghi JP Group Murli Birla Corp West

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 31
01 September 2021 Indian Cement Industry
Exhibit 89: The Southern market remains the most fragmented Exhibit 90: Declining capacity share of the top-5 players
25 55

20 50

15
45
(mtpa)

10

(%)
40

5
35

0
30
FY16

FY22E

FY23E

FY24E
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21
-5
25
ACC Chettinad Dalmia FY15 FY16 FY17 FY18 FY19 FY20 FY21
JSW Cement Penna UltraTech
India Cements Kesoram Ramco South

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 32
01 September 2021 Indian Cement Industry

Incremental supply is likely to be lower than incremental demand

Cement demand remained resilient in FY21 despite concerns of deterioration due to
COVID-19-led challenges. Though the data reported by the Office of Economic
Advisors (core industries data) reflects an industry volume decline of 11.9% YoY in
FY21, the companies that we have analysed (65% of the industry’s installed
capacities) reported volume growth of 1.4% YoY. We saw similar disparities in the
companies and core industries data after the announcement of demonetization by
the Central government in Nov’16. As per the core industries data, the industry
witnessed a deceleration in production from Dec’16 to Jun’17, while our analysed
companies did not report volume declines in this period. In 4QFY17, our analysed
companies reported a volume growth of 4% YoY, which was in stark contrast to the
11.9% YoY volume decline in the core industries data. This data got normalised by
4QFY18 when the companies we analysed reported 8.4% volume growth YoY vs.
18.5% YoY growth as per the data published by the Office of the Economic Advisors.
Exhibit 91: Difference in industry volume growth and analysed Exhibit 92: …similar trend witnessed in 3Q/4QFY21
companies’ volume growth after demonetization…
20 60

15 40
10
20
5 (%)
(%)

0
0
-20
-5
-10 -40

-15 -60
Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

Q4FY21

Q1FY22
Q1FY17

Q3FY18
Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q4FY18

Volume growth of analysed companies Industy Volume growth Volume growth of analysed companies Industy Volume growth

Source: Systematix Institutional Research, Office of Economic Advisors Source: Systematix Institutional Research, Office of Economic Advisors

Based on our industry checks and analysis of the quarterly numbers reported by
companies, the Northern, Central, Eastern and Gujarat markets witnessed volume
growth in FY21, whereas demand remained under pressure in the Southern and
Maharashtra markets. We have assumed an industry volume decline of 3.6% YoY in
FY21. We estimate a volume growth of 9.3%/9.3%/7.2% for the industry in
FY22/23/24E. The industry should see ~19% YoY volume growth in 1HFY22E on a low
base of last year. Higher industry growth in FY23E will be driven by a gradual demand
recovery in the Southern/Maharashtra markets.
Our industry volume growth assumptions reflect a CAGR of 3.7% between FY19-24E,
which is not aggressive given a 6% volume CAGR between FY10-19 even when the
organised urban estate was under pressure. Based on the orders placed with
equipment suppliers and Dalmia Bharat’s recent expansion plans, we believe clinker
capacities will increase at a CAGR of 3.4% over FY19-24E, leading to an improvement
in capacity utilisation. Additionally, we expect a demand CAGR of 8.6% between FY21-
24E against a clinker capacity CAGR of 4.7%.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 33
01 September 2021 Indian Cement Industry
Exhibit 93: The low base of FY21E may support higher volume Exhibit 94: Clinker capacity growth to be lower than demand
growth in the Southern/Western regions growth
14 12
11.6 9.7
12 10 9.3
10.3
10
8.6 8 7.1
8 7.3 7.5 6.2
6.7 5.7
(%)

(%)
6
6 4.7
4.6 4.7 4.2
4.2 3.4
3.7 4 3.2 3.0
4 2.8 2.6
2 2 1.3 1.5

0 0
North Central East West South Pan-India North Central East West South Pan-India

FY19-24E FY21-24E FY19-24E FY21-24E

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Clinker utilisation is a better indicator of the demand-supply trends

Our analysis indicates that the industry has higher grinding capacities in the
Eastern/Western/Central regions. Hence, the installed clinker capacity rather than
grinding capacity is a better gauge to evaluate the industry’s demand-supply
dynamics. The Northern and Southern regions seem more balanced in terms of
installed clinker and cement capacities while other regions have surplus grinding
capacities. Higher grinding units in the Central region are primarily due to the grinding
units in Western Uttar Pradesh that are fed by the clinker plants of the Northern
region. A few South-based players have installed grinding units in the Eastern region
for better utilisation of their clinker capacities.
Exhibit 95: Clinker to cement conversion ratio (C:C ratio) indicates surplus grinding
capacities in the Eastern, Western and Central regions
3.00

2.50 2.39

2.00 1.84
1.68
1.56
1.50 1.371.42 1.42 1.32 1.35 1.37

1.00

0.50

-
North Central East West South

C:C Ratio based on installed capacities

C:C Ratio based on regional product mix
Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 34
01 September 2021 Indian Cement Industry

Industry clinker utilisation to improve gradually

We expect clinker utilisation of the industry to improve gradually till FY24E as the
incremental demand-supply gap is likely to narrow. The clinker utilisation in the
Northern region is expected to improve to 85.2% by FY24E vs. 76.3% in FY21. In the
Eastern region, clinker utilisation is likely to be at 83.8% in FY24E vs. 90.1% in FY21.
The Southern region is expected to see a capacity utilisation of 63.7% in FY24E vs.
49.1% in FY21 (57.5% in FY20). We expect capacity utilisation in the Western region
to be at 83.5% in FY24E vs. 75.6% in FY21 (85.8% in FY20). The behavior of new
players needs to be monitored as production from Birla Corporation’s Mukutban
plant and the acquired plant of Murli Industries is expected to commence in 2HFY22.
In the Central region, capacity utilisation is expected to be at 80.9% in FY24E vs. 86.2%
in FY21. Most of the capacity increase in this region will be by leading players (ACC
and UltraTech) and is unlikely to put pressure on prices. The pan-India average clinker
capacity utilisation is expected to improve to 76.5% by FY24E vs. 68.7% in FY21.
Exhibit 96: Clinker utilisation should improve gradually in the Exhibit 97: New capacities may lead to a decline in clinker
Northern region utilisation in the central region
90 90

85 85

80 80
(%)

(%)
75 75

70 70

65 65

60 60
FY15
FY11

FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY12

FY19
FY11

FY13

FY14

FY15

FY16

FY17

FY18

FY20

FY21

FY22E

FY23E

FY24E
North Central

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Exhibit 98: Clinker utilisation to decline in the Eastern region Exhibit 99: Clinker utilisation in the Western region to decline in
FY22E, but improve thereafter
105
95
100
90
95
90 85
85 80
(%)

(%)

80
75
75
70
70
65 65
60 60
FY21
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY22E

FY23E

FY24E

FY17
FY11

FY12

FY13

FY14

FY15

FY16

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

East West

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 35
01 September 2021 Indian Cement Industry
Exhibit 100: Expect an improvement in clinker utilisation in the Exhibit 101: Industry should witness an improvement in clinker
Southern region utilisation
65 80

60 75

70
55
(%)

(%)
65
50
60
45
55

40 50
FY14
FY11

FY12

FY13

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY23E
FY12

FY22E

FY24E
FY11

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21
South Pan-India

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Clinker utilisation at 93%+ (ex-South) during the Jan-March period to lead to strong
prices in that period
We believe that the average industry utilisation (ex-Southern region) will be 93%+ in
the 4Q (Jan-March) of every financial year, resulting in better pricing power in that
period. The Eastern region will see the highest clinker utilisation in 4Q. A few leading
cement companies have highlighted that they face clinker shortage in the Eastern
region during the peak season (4Q).
Exhibit 102: Ex-South, clinker utilisation to remain strong in 4Q
100 98.8
95.4 95.3
95 93.1 93.2

89.3
90 87.7
86.3 87.0 86.5
(%)

84.7
85

80

75
Q4FY14

Q4FY15

Q4FY16

Q4FY17

Q4FY18

Q4FY19

Q4FY20

Q4FY21E

Q4FY22E

Q4FY23E

Q4FY24E
Average clinker utilisation ex-South region

Source: Systematix Institutional Research, Industry

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 36
01 September 2021 Indian Cement Industry

Improved utilisation to help maintain prices and pass on cost inflation;

we factor in a price CAGR of 2% between FY21-24E
After remaining flat between FY13-17, pan-India cement prices have improved over
the last two years led by a sharp improvement in clinker utilisation in 4QFY19 which
sustained till FY21. Clinker utilisation (ex-Southern region) likely improved to 95.4% in
4QFY19 vs. 87.7% in 4QFY18. Adjusted for the 10 days of production loss, we believe
ex-Southern clinker utilisation remained at 96.1% in 4QFY20. We expect ex-Southern
clinker utilisation to be at 93.1%/93.2%/95.3% in 4QFY22/23/24E. Strong clinker
utilisation in 4Q should lead to robust cement prices in that period.
As the earnings of cement companies are highly sensitive to the change in cement
prices (a 1% change in cement price leads to a 4-6% change in EBITDA), we expect
profitability to improve. Considering the historical volatility and the strong
improvement in cement prices over the last two years, our assumptions are less
aggressive.
We factor in an average realisation growth of 2% for our coverage companies
between FY21-24E, which should lead to an EBITDA/ton CAGR of 3.3%. Higher
profitability should lead to improvement in average RoE/RoCE of our coverage
companies. We expect average RoE to improve from 14% in FY21 to 15.3% in FY24E;
whereas; RoCE is expected to improve from 15.6% in FY21 to 17.8% in FY24E.
Exhibit 103: Changes in realisations, costs and profits on a per ton basis
Particulars FY05-08 FY08-11 FY11-13 FY13-15 FY15-17 FY17-19 FY19-21 FY21-24E
Realisation 19.2 1.8 11.6 2.1 -1.1 2.3 3.9 1.7
RM 11.6 7.4 11.3 10.5 -2.0 2.3 2.6 2.6
Employee 14.6 12.9 10.2 8.7 2.4 -2.8 6.7 -4.2
Energy 6.5 8.3 7.3 0.9 -12.5 16.3 -5.3 2.6
Freight 24.7 11.1 11.7 6.5 -1.4 7.3 -1.7 3.0
Other expense 7.0 3.4 11.0 9.0 -1.0 -5.5 -0.1 -2.7
EBITDA 45.4 -13.9 18.0 -14.9 12.3 -7.8 24.9 2.2
Total expense 11.4 8.1 9.9 6.5 -3.9 4.8 -0.8 1.2
Source: Systematix Institutional Research, Company

Exhibit 104: Changes in cement prices over the last few years
Regions FY05-08 FY08-11 FY11-13 FY13-15 FY15-17 FY17-19 FY19-21
North 12.7 3.4 4.8 -1.1 3.2 -1.4 9.5
Central 14.0 2.3 9.1 0.9 1.9 1.5 4.2
East 12.2 3.0 13.5 -1.1 -3.6 1.2 -1.5
West 16.4 -1.1 12.1 1.4 -4.6 5.8 3.9
South 16.2 -0.4 13.5 1.6 1.5 -1.2 7.0
Average 14.3 1.4 10.6 0.3 -0.3 1.1 4.7
Source: Systematix Institutional Research, Company

Energy costs controlled through WHRS and higher usage of alternate fuels
In the last ten years, cement companies have reduced the share of power and fuel
costs in the total cost by 1) installing waste heat recovery systems (WHRS), 2)
increasing the usage of pet-coke/alternate fuels and 3) softer merchant power rates.
We expect the unit power and fuel cost to remain in check led by cement players’
focus on increasing the share of renewable energy (wind, WHRS, solar, biomass).
Meanwhile, the share of logistics costs has increased due to the rise in diesel prices.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 37
01 September 2021 Indian Cement Industry
Exhibit 105: Cost structure in FY10 Exhibit 106: Cost structure in FY21: Logistics cost has increased in
overall cost structure

21% 22% 19% 20%

Raw Materials Raw Materials

Power and fuel Power and fuel
8%
8% Logistics Logistics
Employee Employee
Other Exp. Other Exp.
25%
27%
22% 28%

Source: Systematix Institutional Research, Companies Source: Systematix Institutional Research, Companies

Over the past decade, cement players have increased the usage of WHRS to control
power costs and reduce carbon emissions. The current installed capacity of WHRS in
the industry is estimated at 611MW vs. 8MW in FY08 and is likely to increase to
1,000MW+ by FY24E. A WHRS entails a set-up cost of ~80-100mn/MW with negligible
operating costs; thus, the payback period is shorter than a thermal power plant. We
estimate WHRS to help produce 15-18% of the cement consumed going forward.
Exhibit 107: WHRS shoud help produce 15-18% of the cement consumed
900
800
700
600
500
400
300
200
100
0
FY12

FY19
FY08
FY09
FY10
FY11

FY13
FY14
FY15
FY16
FY17
FY18

FY20
FY21
FY22E
FY23E
WHRS Capacity (MW)
Source: Systematix Institutional Research, Industry

Unlike energy costs, cement players were unsuccessful in containing the logistics cost
due to 1) rising diesel prices and 2) a steep increase in rail freight between FY10-15.
The industry’s average freight cost increased at a CAGR of 11% between FY10-15, led
by a diesel price CAGR of 11% and railway freight CAGR of 6.6%. Between FY15-20,
diesel prices increased at a CAGR of 3.6% whereas the average railway freight
declined at a CAGR of 0.4%, leading to an average freight cost CAGR of 1.8%. In FY21,
the average freight cost for the industry remained flat despite a diesel price increase
of 14% YoY which was likely due to a) lower lead distance - companies tried to reduce
the lead distance by selling in nearby markets when demand picked up after the
easing of the lockdowns, b) higher sales through the railways - cement despatches
through railways increased from 21.4% in FY20 to 23% in FY21. Further, clinker
despatches through railways increased by 16% YoY and c) lower railway freight rates -
4%/5% YoY decline in railways freight/ton for cement/clinker.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 38
01 September 2021 Indian Cement Industry
To counter the rising diesel/truck costs, cement players have increased direct
despatches (leading to lower warehouse rents) and are investing in GPS enabled
trucks to reduce the lead distance to markets.
Exhibit 108: Diesel price increased at a CAGR of 6.4% between Exhibit 109: Railway freight/ton has declined in FY20/21
FY12-21
100 25
90 20 590 1.7
80 15 580
1.5
70 10 570
60
(Rs/lite)

560 1.3

(Rs-ton/km)
5

(%)
50 550

(km)
0 1.1
40
-5 540
30
-10 530 0.9
20
-15 520
10 0.7
0 -20 510
FY14

FY16
FY13

FY15

FY17

FY18

FY19

FY20

FY21

YTDFY22
500 0.5

FY13

YTDFY22
FY10

FY11

FY12

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21
Diesel Price (Mumbai) YoY change Average distance (km) Freight/km

Source: Bloomberg, Systematix Institutional Research Source: Industry, Systematix Institutional Research

Rising fuel prices may lead to higher energy and freight costs in FY22E
Fuel prices (pet coke, coal and diesel) have increased significantly over the last year
and may lead to higher energy/freight costs in FY22E. Pet coke prices (USA) have
increased by 150% vs. the 1QFY21 average price, whereas Reliance has increased pet
coke price by 110% in the same period. Similarly, South African Coal (6,000 NAR) is up
114% over the last year. The industry tried to increase the usage of Australian Coal as
it is cost-competitive compared to other sources of coal, but the price of Australian
Coal increased by 85% in YTDCY21. Diesel prices have increased by ~18% in YTDFY22E.
We believe that increasing pet coke/coal prices may lead to a 15%+ rise in energy
costs in 2HFY22. Pet coke prices have remained volatile historically and industry
experts expect pet coke prices to start declining from 2HFY22 onwards.
Exhibit 110: Increase in South Africa Coal price… Exhibit 111: …and pet coke (USA) price
160 180
140 160
120 140
100 120
(US$/ton)

(US$/ton)

80 100
60 80
60
40
40
20
20
0 0
Q2FY22E
Q2FY16

Q4FY16

Q2FY17

Q4FY17

Q2FY18

Q4FY18

Q2FY19

Q4FY19

Q2FY20

Q4FY20

Q2FY21

Q4FY21

Q4FY16

Q2FY18

Q4FY19

Q2FY21
Q2FY16

Q2FY17

Q4FY17

Q4FY18

Q2FY19

Q2FY20

Q4FY20

Q4FY21

Q2FY22E

South African Coal (US$) USA Petcoke (US$)

Source: Systematix Institutional Research, Industry Source: Systematix Institutional Research, Industry

Focus on premium products to help garner higher realisations

Cement companies have increased the sales of premium products, which generally
command a premium of 15-20% over normal grey cement. Though premium products
have higher associated costs (marketing and branding expense, packaging and
handling costs), the profitability of these products is Rs 150-200/ton higher than
normal grey cement. A few companies have increased their branding & publicity
expenses to increase trade and premium products sales.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 39
01 September 2021 Indian Cement Industry
Exhibit 112: Premium products and trade sales break-up of companies
Premium Products % sales Trade sales (%)
ACC Gold Water Shield, ACC F2R Superfast, ACC Concrete+ Xtra Strong, ACC
ACC Suraksha Power, ACC Suraksha Power+, ACC HPC Long Life, ACC Super 14-15% of total volumes 80%
Shaktimaan
Ambuja Plus, Kawach, Compocem, Buildcem, Powercem 53, Powercem 43,
ACEM 9.5-10% of total volumes 81%
Railcem
UltraTech Super, UltraTech Composite Cement, UltraTech Weather Plus,
UTCEM 10% of volumes vs. 8.3% in FY20 69%
UltraTech Slag
Perfect Plus, Concrecem, Ultimate Ultra, MP Birla Cement Unique, Ultra2, 50% of trade sales vs. 41% of
BCORP 80%
Multicem, Samrat Advanced trade sales in FY20
Ramco Super Grade, Ramco Super Crete, Ramco Super Steel, Ramco Super Fast, 35% of volumes in Q3 vs. 10-12%
TRCL 90%
Ramco Super Coast, Karthic Super Plus, Ramco Samudra, Ramco Super Fine EFC in Q2FY21
18% of trade sales vs. 13% of
DALBHARA Dalmia DSP Cement, Dalmia Infra Pro, Dalmia Infragreen, SRPC, Dalmia Magic 65%
trade sales in FY20
10%+ of trade volume in Mar-21
ORCMNT Birla-A1 StrongCrete 60%
(9% for Q4FY21)
PRSMJ Champion Plus and Duratech 27.7% in FY21 vs. 22.3% in FY20 75%
SRCM Roofon and Bangur Power 7% of trade sales 74%
JKCE JK Super Strong Weather Shield Cement, JK Super Strong Cement 15% of trade sales 66%
JKLC JK Lakshmi PRO+ Cement, Platinum Heavy Duty Cement 10% of total volumes 53%
HEIM mycem power, mycem cement (paper bag) 22% of trade volumes 80%
STRCEM Star Anti Rust Cement 3% of total volumes 87%
Source: Systematix Institutional Research, Company

Working capital has improved, strong FCF generation supported debt reduction
Most cement companies have seen an improvement in their working capital over the
last few years. The companies we analysed generated a cumulative operating cash
flow (OCF) before working capital (WC) of Rs 1800bn and WC got reduced by Rs
24.9bn between FY12-21. Strong improvement in profitability during FY19-21 led to a
combined OCF CAGR of 38.9% for our coverage companies, resulting in a free cash
flow (FCF) CAGR of 57.7%. We expect the combined OCF of our coverage universe to
increase at a CAGR of 5.5% over FY21-24E, leading to an FCF CAGR of 10.9%.
Exhibit 113: OCF generation between FY12-21 Exhibit 114: Most companies saw a reduction in WC between
FY12-21
700 70
600 60
500 50
40
(Rs bn)

400
(Rs bn)

30
300
20
200 10
100 0
0 -10
-20
ACC*

UltraTech

JK Lakshmi
Ramco

Birla Corp

Dalmia Bharat
Ambuja*

Prism Johnson
JK Cement

Orient Cement
India Cements

Heidelberg Cement
Shree

JK Lakshmi
UltraTech
ACC*

Ramco

Birla Corp
Ambuja*

Orient Cement

Dalmia Bharat
Prism Johnson
JK Cement

Heidelberg Cement
India Cements
Shree

Source: Systematix Institutional Research, Company , * Dec-ending companies Source: Systematix Institutional Research, Company , * Dec-ending companies

UltraTech, Shree and Dalmia accounted for 50% of the capex between FY15-21
Most cement companies have utilised their cash flows prudently, which led to an
improvement in their balance sheets despite capacity additions over the last few
years. UltraTech, Dalmia and Shree accounted for 50% of the capex incurred by the
analysed companies between FY15-21. Most of the organic expansion in the industry
has been funded through internal accruals.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 40
01 September 2021 Indian Cement Industry
Exhibit 115: Capex break-up between FY5-21
1% ACC*
9%
12%
Ambuja*
8%
2% UltraTech
3% Shree
1%
Ramco

7% JK Cement
JK Lakshmi
21%
2% Birla Corp
India Cements
8% Orient Cement
Prism Johnson
9% Dalmia Bharat
17%
Heidelberg Cement
Source: Systematix Institutional Research, Company, * Dec-ending companies

Leverage has improved significantly over the last few years

Better profitability between FY18-21 has supported balance sheet improvement for
most companies. The combined net debt of our coverage companies reduced by Rs
197.2bn during FY19-21 (Rs 72.1bn in FY21 vs. Rs 269.3bn in FY19), leading to an
improvement in the average net debt/EBITDA (0.31x in FY21 vs. 1.13x in FY19) and
net D/E for most companies. We expect a further improvement in net debt/EBITDA
for our coverage universe (-0.55x in FY24E).
Exhibit 116: Net debt/EBITDA trend in FY18 Exhibit 117: Net debt/EBITDA in FY21 at comfortable levels
5 3 2.5
4.0
4 1.8
2.9 2
3 2.5 1.3
1.7 1 0.7
2
0.8 0.0
(x)

1
(x)

0
0
-1
-1 -1.1
-0.9 -2
-2 -1.3 -1.6
-1.8
-3 -3 -2.3
ACC

UltraTech

Ramco

Birla Corp

Dalmia Bharat
Ambuja

JK Cement

Dalmia Bharat
JK Cement
ACC

Ramco
UltraTech

Birla Corp
Ambuja
Shree

Shree

Source: Systematix Institutional Research, Company , *Dec-ending companies Source: Systematix Institutional Research, Company , *Dec-ending companies

Exhibit 118: Net D/E trend in FY18 Exhibit 119: Net D/E trend in FY21
1.4 1
1.2 0.6
1.2 0.5 0.5
1
1.0
0.8 0
0.8
0.6 0.2
0.6 0
0.0
(x)
(x)

0.3
0.4 0.2 0
0.2 0
-0.1
0.0
0
-0.2
-0.2 -0.5 -0.4
-0.4 -0.3 -0.2 -1
Dalmia Bharat
UltraTech

Birla Corp
JK Cement
ACC

Ramco
Ambuja

Shree
Birla Corp
UltraTech
ACC

Ramco
Ambuja

Dalmia Bharat
JK Cement
Shree

Source: Systematix Institutional Research, Company , *Dec-ending companies Source: Systematix Institutional Research, Company , *Dec-ending companies

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 41
01 September 2021 Indian Cement Industry

Valuations
Exhibit 120: UTCEM’s 1yr forward EV/EBITDA trading close to +1SD Exhibit 121: …and 1-year forward EV/ton just below +1SD
25.0 300

20.0 250

200
15.0

(US$/ton)
150
(x)

10.0
100
5.0
50

0.0 -
Aug-08

Aug-21
Aug-07

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
-5.0

1-year fwd EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 122: SRCM’s 1-year forward EV/EBIDTA at +1SD… Exhibit 123: …while 1-year forward EV/ton above +1SD
30
300
24
250
18
(US$/ton)

200
(x)

12
150
6
100
0
50
Aug-11
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 124: ACEM’s 1-year forward EV/EBITDA trading above mean Exhibit 125: …and 1-year forward EV/ton trading above +1SD
30.0 300

25.0 250

20.0 200
(US$/ton)
(x)

15.0 150

10.0 100

5.0 50

0.0 -
Aug-12

Aug-13
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 42
01 September 2021 Indian Cement Industry
Exhibit 126: ACC’s 1-year forward EV/EBITDA at 14-year mean… Exhibit 127: …and 1-year forward EV/ton trading just above mean
20.0 180

160
15.0
140

(US$/ton)
120
10.0
(x)

100

5.0 80

60
0.0 40
Aug-11

Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14

Aug-20
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-21
1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 128: DALBHARA’s 1-year forward EV/EBITDA just above Exhibit 129: …while 1-year forward EV/ton above +1SD
+1SD…
20 250
18
16 200
14
(US$/ton)
12 150
(x)

10
8 100
6
4 50
2
0 0
Aug-12
Aug-11

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
1Y fwd. EV/EBITDA Mean +1SD -1SD 1Y fwd. EV/Ton Mean +1SD -1SD

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 130: JKCE’s 1-year forward EV/EBITDA trading just below Exhibit 131: …and 1-year forward EV/ton near +3SD
+2SD
16 240
210

12 180
(US$/ton)

150
120
(x)

8
90

4 60
30

0 0
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-17

Aug-21
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 43
01 September 2021 Indian Cement Industry
Exhibit 132: TRCL’s 1-year forward EV/EBITDA at +1SD… Exhibit 133: …and 1-year forward EV/ton trading above +1SD
20 190

170
15
150

(US$/ton)
130
(x)

10
110

5 90

70
0 50

Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-12
Aug-09

Aug-10

Aug-11

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 134: BCORP’s 1-year forward EV/EBITDA just below Exhibit 135: …and 1-year forward EV/ton above +1SD
+1SD…
15
140

12 120
100
(US$/ton)
9
80
(x)

6 60
40
3
20

0 0 Aug-11

Aug-14
Aug-09

Aug-10

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-11

Aug-12

Aug-13
Aug-09

Aug-10

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1yr fwd EV/ton Mean Std-1 Std+1

1-year forward EV/EBITDA Mean Std-1 Std+1

Source: Systematix Research Institutional Research, Bloomberg, Company Source: Systematix Research Institutional Research, Bloomberg, Company

Exhibit 136: Valuation of cement players on EV/EBITDA basis Exhibit 137: Valuation of cement players on EV/ton basis

25.0 25
ULTRATECH
AMBUJA
AMBUJA 20
FY23E EBITDA/ton (USD)

20.0 DALMIA
FY21-24E EBITDA CAGR

ACC ULTRATECH SHREE

15.0 15 RAMCO JK
(%)

DALMIA RAMCO ACC

10.0 10 BIRLA
BIRLA SHREE
JK
5.0 5

- -
- 5.0 10.0 15.0 20.0 25.0 -2 48 98 148 198 248 298
FY23E EV/EBITDA (x) FY23E EV/Ton (USD)

Source: Systematix Research Institutional Research, Companies, Bloomberg Source: Systematix Research Institutional Research, Companies, Bloomberg

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 44
01 September 2021 Indian Cement Industry

COMPANIES SECTION

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 45
 Systematix
Institutional Equities

01 September 2021
UltraTech Cement
Best placed to capture demand uptick; initiate with BUY
INITIATING COVERAGE UltraTech Cement (UTCEM), the largest cement company in India, has outpaced the
Sector: Cement Rating: BUY industry’s capacity growth rate and gained significant market share through
organic and inorganic capacity expansion. It plans to increase its grinding capacity
CMP: Rs 7,834 Target Price: Rs 9,275
by 19.5mt by FY23E and has received environmental clearance (EC) for a further
Stock Info 21.4mt expansion. The company aims to achieve a capacity of 160mtpa in India
Sensex/Nifty 57,552/17,132 through the organic route by FY30E. It continues to explore inorganic expansion
Bloomberg UTCEM IN opportunities and maintains a liquid cash balance of +Rs 100bn for acquisitions.
Equity shares 288mn We expect its sales volumes to grow at a CAGR of 11.4% over FY21-24E. Further, a
52-wk High/Low Rs 7,930/3,755 focus on reducing operating expenses should aid profitability. We expect UTCEM’s
Face value Rs 10 EBITDA/EPS to grow at a CAGR of 15%/21% over FY21-24E. Improvement in the
M-Cap Rs 2,265bn/USD 31bn balance sheet (net cash positive in FY23E) and return ratios (RoE of 16.3% in FY24E
3-m Avg volume USD 36.7mn vs. 13.4% in FY21) will help it command premium multiples. We initiate coverage
Financial Snapshot (Rs bn) on the stock with a BUY rating and a target price of Rs 9,275.
Y/E March FY22E FY23E FY24E A pan-India player; strong capacity pipeline to aid growth
Sales 525 583 641
EBITDA 137 156 175 UTCEM has a pan-India presence with a capacity share of 12%/15% in the
PAT 71 85 99 Southern/Eastern, 23% in the Northern and 36%/39% in the Western/Central
EPS (Rs) 245 294 343 regions. It increased its capacity at a CAGR of 9.8% between FY12-21, which is
PE (x) 32 27 23 significantly above the industry’s capacity CAGR of 5.2% in the same period, along
EV/EBITDA (x) 16.7 14.3 12.3
with market share gains (34% in 1QFY22 vs. 27% in 1QFY15). It plans to increase its
RoE (%) 15.0 15.9 16.3
RoCE (%) 16.1 17.6 18.8
grinding capacity by 19.5mtpa by FY23E. Besides organic expansions, the company
Dividend yield (%) 0.5 0.6 0.7 continues to explore inorganic opportunities (~70% of capacity additions over FY12-
21 were through the inorganic route) and maintains Rs 100bn+ liquid reserves for
Shareholding pattern (%) acquisitions. We expect a sales volume CAGR of 11.4% over FY21-24E.
Jun-21 Mar-21 Dec-20
Promoter 59.9 59.9 59.9
Cost savings to boost profitability and return ratios
–Pledged - - - UTCEM is reducing opex by a) decreasing the lead distance, b) increasing power
FII 16.6 17.3 16.8
generation through WHRS/solar plants - incremental cost savings of Rs 40/ton
DII 14.4 13.7 14.1
through WHRS by FY25E and c) controlling fixed costs – were at levels similar to FY19
Others 9.1 9.1 9.2
in FY21. The MMDR Amendment Act will drive savings of Rs 2bn+ (Rs 20/ton on
Stock Performance (1-year) FY22E sales volumes). Net debt/EBITDA improved to 0.66x in FY21 vs. 3.1x in FY20.
9000
We expect the company to become cash positive in FY23E despite the on-going
8000 capex plans. UTCEM’s RoE improved to 13.4% in FY21 vs. 10.1% in FY18 (8.4% in
7000 FY19). We expect RoE to improve to 16.3% by FY24E, while RoIC to improve to 17%
6000
5000
vs. 10.7% in FY21.
4000
3000
Outlook & Valuation
2000
The stock trades at 16.7x/14.3x/12.3x FY22E/23E/24E EV/EBITDA and USD
Sep-20

Feb-21
Nov-20

Jan-21
Aug-20

Mar-21

Apr-21

Jul-21
Oct-20

Dec-20

May-21

Aug-21
Jun-21

251/222/213 FY22E/23E/24E EV/EBITDA. It has traded at an average EV/EBITDA of

Ultratech Sensex
14.3x in the last 10 years. Going forward, with the improvement in profitability
Sanjeev Kumar Singh (estimate EPS CAGR of 21.1% over FY21-24E) and balance sheet (to turn net cash
sanjeevsingh@[Link] positive in FY23E, capex to be funded through internal accruals), we expect UTCEM
+91 22 6704 8017
to trade at higher multiples. We value it at 17x FY23E EV/EBITDA to arrive at a target
Rahul Jain price of Rs 9,275 (an upside of 18.4% from the CMP) and initiate coverage with a BUY
rahuljain@[Link] rating.
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 46
01 September 2021 UltraTech Cement

Story in charts
Exhibit 1: Increase in capacity share between FY17-21.. Exhibit 2: …led to market share gains (considering analysed cos.)
45

38.5
36 35
34 34 34 34

36.2
34

35.0
40 34 33 33 33 33

33.2
33 32

32.8
35 32 31
24.1

30 30 29 29
23.4

27

20.5
28 27 26 27 27 26 27 26 27

(%)
25
(%)

26 26 25
15.0
14.9
20 26 25 25
14.0

11.6
11.4
15 24
9.8

9.6
10 22
5 20

1QFY19

3QFY19

1QFY20
1QFY15

3QFY15

1QFY16

3QFY16

1QFY17

3QFY17

1QFY18

3QFY18

3QFY20

1QFY21

3QFY21

1QFY22
0
North Central East West South

FY17 FY21 FY24E Market share

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: 19.5mt of grinding capacity planned by FY23E… Exhibit 4: …UTCEM will keep investing in capacity expansion
135 180
160.0
130 160

125 12.8 140 130.9

(mt)

120 120 111.4

(mt)

115 4.7 130.9

100
2.0
110 80

105 111.4 60
FY20 FY23E FY30E
100
FY20 FY21 FY22E FY23E FY23E Domestic grey cement capacities

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: UTCEM has received ECs for a further 21.4mt capacity Exhibit 6: Higher power generation through WHRS/solar power
expansion plants
16
25 23.2
13.5
14
19.4
12 20
16.8
10
15
12.4
(mt)

8
(%)

11.2
8.9 9.4 9.0 9.5
6 10 8.4
3.6 3.5 5.6
4
5 3.6
2 0.8 1.6 2.1

0 0
North Central East South FY19 FY20 FY21 FY22E FY23E FY24E FY25E

North Central East South Power through WHRS Power through Solar plants

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 47
01 September 2021 UltraTech Cement
Exhibit 7: Savings expected through WHRS Exhibit 8: Continued improvement in leverage
80 73 4 3.1
70 3 2.5
61
3 2.0
60 53
2
50
2 1.1
(Rs/ton)

39

(x)
40 33 1 0.7
29 0.2
30 1 0.2
23 0.7 (0.0)
0 0.6 0.5 (0.2)
20 0.3 0.2
-1 0.0 0.1 (0.2)
10 (0.6)
-1

FY20
FY16

FY17

FY18

FY19

FY21

FY22E

FY23E

FY24E
0
FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Savings through WHRS Net D/E Net debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Return ratios to improve between FY21-24E Exhibit 10: EBITDA/ton to increase over FY21-24E
20 18.8 1,600 30
1,489
17.0 1,439
18 16.3 1,364 1,379
1,400
16 25
13.4 13.9 1,141
14 1,200
11.5 996 20
12 10.1 10.7 1,000 868
(Rs/ton)
(%)

10 9.0
800 15
8
600
6 10
4 400
2 5
200
0
0 0
RoE (%) RoCE (%) RoIC (%)
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
FY18 FY21 FY24E EBITDA/ton EBITDA Growth %---RHS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1-year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
25.0 300

20.0 250

200
15.0
(US$/ton)

150
(x)

10.0
100
5.0
50

0.0 -
Aug-08

Aug-21
Aug-07

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

-5.0

1-year fwd EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 48
01 September 2021 UltraTech Cement

Company Background
UTCEM, the largest manufacturer of grey cement, ready mix concrete (RMC) and
white cement in India, is the cement flagship company of the Aditya Birla Group. It is
the third-largest cement producer in the world, excluding China. UTCEM is the only
cement company globally (outside of China) to have 100mtpa+ of cement
manufacturing capacity in a single country. The company’s business operations span
UAE, Bahrain, Sri Lanka and India.
It has a consolidated capacity of 116.8mtpa of grey cement with 23 integrated
manufacturing units, 27 grinding units and 7 bulk packaging terminals. In the white
cement segment, UTCEM markets its products under the Birla White brand name. It
has one white cement unit and one wall care putty unit, with a current capacity of
1.5mtpa. With 136 RMC plants in 41 cities, UTCEM is the largest manufacturer of
concrete in India. It also has a slew of speciality concretes that meet the specific
needs of discerning customers.
Exhibit 13: Highly diversified pan-India presence

Source: Company

UTCEM pioneered the UBS (UTCEM Building Solutions) concept to provide individual
home-builders with a one-stop-shop solution for building their homes. This is the
first pan-India multi-category retail chain catering to the needs of individual home
builders. The purpose of this initiative is to engage with home builders at all stages of
the construction cycle, empower them with quality construction products and
services and assist in the completion of their homes.
The company is a founding member of the Global Cement and Concrete Association
(GCCA). It is a signatory to the GCCA Climate Ambition 2050, a sectoral aspiration to
deliver carbon-neutral concrete by 2050. UTCEM is the first company in India and the
second company in Asia to issue dollar-based sustainability linked bonds. As part of
its CSR, it reaches out to more than 1.6 million beneficiaries in over 500 villages
across India covering areas of education, healthcare, sustainable livelihoods,
community infrastructure and social causes.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 49
01 September 2021 UltraTech Cement
Exhibit 14: Balanced growth through organic and inorganic expansion

51.8 mtpa
 Organic Capacity
addition: 15 mtpa
31.0 mtpa  Group Cement business
1.0 mtpa under one roof 116.8 mtpa
 Acquisition of L&T
 1st cement plant set up for  Acquisition of Star
Cement Business  Added 49.1 mtpa
Grasim (Vikram Cement) and Cement: 3 mtpa
(17 mtpa) capacity*
Indian Rayon (Rajashree Cement)
 Listing of UltraTech as  Building Products  #3 global cement player
 White Cement launched in 1988 launched in 2012
part of acquisition by capacity (ex. China)

1983-88 1998 2004 2008 2011 2016 2020

8.5 mtpa 35.0 mtpa 67.7 mtpa

 Merger of Indian Rayon and  Focus on Cost Leadership between 2005-2009

Grasim Cement business
 Synergy of Cement Business of ABG under one roof
 Ready mix concrete launched
in 1998  Investments in TPPs – 80% power self-sufficient
 UltraTech Building Solutions launched in 2007

*Incremental capacity from Mar-16 to Dec-20

Source: Company, Systematix Institutional Research

Exhibit 15: Management team details

Name Designation Background
A Chartered Accountant with over 37 years of experience, of which 34 years have been
with the Aditya Birla Group.
K. C. Jhanwar Managing Director
Has held various roles in finance, operations and general management across the cement
and chemicals businesses of the Group, including greenfield and brownfield expansions.
A Chartered Accountant with over 29 years of experience, of which over two decades have
been with the Aditya Birla Group.
Whole-time Director & Chief
Atul Daga
Financial Officer Has undertaken initiatives such as creating a platform for investor relations, evaluating
M&A opportunities and raising long-term borrowings in the domestic markets.
Joined the Group in 1993 as a Zonal Manager in the Cement Marketing Division and went
Group Executive President & on to hold important positions such as Zonal Head – Grey Cement South; Head, Marketing
Vivek Agrawal – Birla White and Head – RMC Business. He is a B.E.(Hons) from NIT Allahabad and MBA
Chief Marketing Officer
from FMS, Delhi.
Has been associated with the Aditya Birla Group for the past 13 years and has served as
Group Executive Vice President at Grasim and as CEO at Aditya Birla Nuvo before joining
Chief Manufacturing Officer &
Raj Narayanan E.R UTCEM cement in Jan'20.
Business Head
Holds a Chemical Engineering degree from Anna University, Chennai.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 50
01 September 2021 UltraTech Cement

Manufacturing facilities
Exhibit 16: Balaji Cement Works, Andhra Pradesh (5mtpa) Exhibit 17: Aditya Cement Works, Rajasthan (5mtpa)

Source: Company Source: Company

Exhibit 18: Awarpur Works, Maharashtra (3.6mtpa) Exhibit 19: Kotputli Cement Works, Rajasthan (3.1mtpa)

Source: Company Source: Company

Exhibit 20: Jetty unit on the western coastline Exhibit 21: Building Materials Solutions Touch point

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 51
01 September 2021 UltraTech Cement
Exhibit 22: Diversified products offer a full suite of building solutions

Source: Company

Exhibit 23: Nationwide reach with strong logistics presence across India

Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 52
01 September 2021 UltraTech Cement
Exhibit 24: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Risks/Concerns YoY Growth
initiatives

 Affordable housing
program, interest rate  The company has
subvention scheme, disposed of around 1.5
 UTCEM will be setting up a LMT of waste in the kilns,
continuing infrastructure  Securing primary
3.5mtpa integrated cement Volume: 4.1%
spending, improving resulting in a 2% saving of
plant at Dhar, MP at a raw material Revenue: 1%
demand sentiments in the the total fuel requirement. EBITDA: 6%
FY17 capex of Rs 26bn. Its  Low demand and
South India market and
commercial production is
 The increase in the share overcapacity
PAT: 9%
revival in rural housing of WHR to 7% of the total
expected to commence by  Fuel costs
demand, are expected to power requirement led to
4QFY19.
be the key factors for reduced consumption of
cement demand growth in coal and pet coke.
FY18.

 Growth in the cement

sector is expected to be
around 8% in FY19.  Enhanced usage of waste
 Plans to set up a 3.5mtpa heat recovery power to
 Likely to be driven by integrated cement plant at
8%.  Market demand
construction of around Pali, Rajasthan, at an
84,000 kilometers of roads  Entering into solar power  Energy costs Volume: 23.5%
investment of around Rs Revenue: 22%
FY18 by 2022 including the purchase agreements to  Raw materials and
18.5bn; commercial EBITDA: 18%
Bharatmala Project, production from the plant cut power costs at mineral PAT: -5%
construction of rural roads grinding units and to meet components
is expected to commence
under the Pradhan Mantri by Jun'20. renewable energy
Gram Sadak Yojana by obligations.
2019, Housing for All by
2022.

 Volume growth of 13% led  Completing work remaining

by improvement in low- on the green field plant at
cost houses constructed Manavar, District Dhar,
under the Pradhan Mantri Madhya Pradesh,  UTCEM is further setting  Economic
Awas Yojana (“PMAY”) in commissioned during up 46 MW of WHRS environment and Volume: 34.1%
rural areas. 1QFY19. capacity which is expected Revenue: 21%
market demand
 On the individual home  Ongoing capex at Bara to be commissioned in
 Inflation and cost
FY19 EBITDA: 10%
building (IHB) front, the grinding unit which is FY21. This would cater to
of production
rural housing market has expected to be ~12% of the company’s PAT: -5%
shown demand traction in commissioned by 2QFY20. current total power  Legal and
requirement. compliance
major markets; however,  WHRS - Work is in progress
Tier 2 and Tier 3 urban at 4 different plant
markets are yet to pick- locations; to be operational
up. by FY21.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 53
01 September 2021 UltraTech Cement

 UTCEM plans to achieve

 Apart from the general
185MW/272MW/302MW
economic slowdown,
capacity by FY22/23/24E
cement demand was
sluggish during 1HFY20
 Capex of Rs 9.4bn during from 125MW currently. It  Economic
the year for making expects to achieve 26% of
post the general elections environment and
premium products, with an total power consumption
in April-May, 2019. market demand Volume: -6.4%
increase in its grinding through WHRS alone by Revenue: +1%
FY20  2HFY20 witnessed FY24E.  Inflation and cost
capacities in Bihar and EBITDA: 26%
extended monsoons, low- of production
West Bengal by 0.6mtpa  Plans to increase its solar PAT: 47%
capital expenditure on each and a new grinding and wind power capacity  Legal and
infrastructure and road compliance
unit of 2.2mtpa in Odisha. from 99MW to > 350MW
activities, along with
by the end of FY22 and
financial stress in the
cater to ~7% of the total
NBFC and housing sectors.
power requirement.

 Fresh capex of ~Rs 54.8bn Volume: 4.7%

 UTCEM shall commission Revenue: 5.4%
towards increasing capacity
 The cement industry 72MW of WHRS capacity EBITDA: 25.1%
by 12.8mtpa with a mix of
witnessed a 10-12% YoY during FY22, taking the PAT: 53.1%
brownfield and greenfield
decline due to the COVID- total WHRS capacity to
expansion. The additional
19 pandemic but 2HFY21 197MW. It plans to
capacity will be created in
saw signs of recovery. further increase this to
the fast-growing East,  Economic
 Amidst the pandemic, 302MW by FY24, which
Central and North markets Environment which
cement consumption will cater to 26% of the
of the country. may impact
witnessed strong growth total power requirement.
 The company’s 6.7mtpa cement demand.
in the rural, semi-urban  Plans to increase solar &
capacity expansion is  Inflation in RM
and retail markets. wind power capacity from
FY21 currently underway in Uttar costs which may
 Government spending on 125MW to >350MW by
Pradesh, Odisha, Bihar and lead to higher Cost
infrastructure projects and FY22-end, which will cater
West Bengal and is of Production.
affordable housing to ~7% of the total power
expected to commence  Legal and
schemes such as the requirement.
commercial production in a compliance.
Pradhan Mantri Awas phased manner by 4QFY23.  Use of low-cost fuel viz.
Yojana with enhanced industrial waste, and a
 Upon completion of the
budgetary allocations will continuous improvement
above expansions, UTCEM’s
be the primary growth in thermal power plant
capacity (including overseas
drivers for the cement efficiency by reducing
markets) will grow to
industry. auxiliary consumption
136.25mtpa from
power.
116.8mtpa currently.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 54
01 September 2021 UltraTech Cement

Investment Analysis
A market leader with a presence across regions
UTCEM is a pan-India player and price leader across regions except in a few markets:
Bihar (Nuvoco), East & Central UP (ACC), Punjab (ACC), Haryana (Ambuja) and Kerala
(Ramco Cements). The acquisition of JP Associates capacities has helped it
established itself as the market leader in the Central region and gain significant
capacity share in the Northern/Central regions.
Exhibit 25: UTCEM is a market leader in all regions

Source: Company

Through the acquisition of Binani Cement and Century Textiles capacities, it further
strengthened its position and established itself as the market leader in the
Northern/Western regions. It was ranked as the 4th player in terms of capacity in the
Central region in FY17 with only 8% of its capacities being in the region. It generates
21-24% of its revenues from the Central, Eastern and Western markets. Organic and
inorganic capacity additions helped it establish leadership positions in most markets
and gain market share over the last few years.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 55
01 September 2021 UltraTech Cement
Exhibit 26: Increase in capacity share between FY17-21… Exhibit 27: …led to market share gains (considering analysed cos.)
45

38.5
36 35
34 34 34

36.2
34 34

35.0
40 34 33 33 33

33.2
33

32.8
33 32
35 32 31
24.1

30 30 29 29
23.4

20.5
27 27
25 28 27 26 27 27 26 27 26

(%)
(%)

26 26 25

15.0
14.9
20 25 25
14.0

26

11.6
11.4
15 24
9.8

9.6
10 22
5 20

1QFY19

3QFY19

1QFY20
1QFY15

3QFY15

1QFY16

3QFY16

1QFY17

3QFY17

1QFY18

3QFY18

3QFY20

1QFY21

3QFY21

1QFY22
0
North Central East West South

FY17 FY21 FY24E Market share

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Strong capacity pipeline to aid growth

In Dec-20, UTCEM announced cement capacity expansion plans of 12.8mt apart from
the on-going capacity expansion of 6.7mt. The management had earlier highlighted
that it has 51mt of proven capacities to grow organically apart from the inorganic
expansion opportunities of 61mt. On the 4QFY21 earnings con-call, the management
stated that it will maintain Rs 100bn+ of cash reserves for acquisition opportunities.
Exhibit 28: UTCEM to add 19.5mtpa of grinding capacity by FY23E
135

130

125 12.8

120
(mt)

115 4.7 130.9

2.0
110

105 111.4

100
FY20 FY21 FY22E FY23E FY23E
Source: Systematix Institutional Research, Company

Cement grinding capacity expansions are spread across regions (barring the Southern
region) and will be completed by Mar-23. Clinker capacity expansions will be in the
Northern, Central and Eastern regions.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 56
01 September 2021 UltraTech Cement
Exhibit 29: Capacity addition is spread across India (excluding South) Exhibit 30: Of the proposed grinding units expansion, 68% of the
capacity is based in Central & East India – picture not clear
12 Cement cap.
Zone State
10.1 (mtpa)
10 Cuttack Odisha 2.2
Bara & Dalla Uttar Pradesh 3.3
8 Dankuni West Bengal 0.6
6.0 Patliputra Bihar 0.6
(mt)

6 5.1 Cement cap.

Cluster State Details
(mtpa)
4 Cuttack: 2.2, Durgapur:0.6,
2.7 2.5 2.7 Hirmi Chhattisgarh Sonar Bangla: 0.6, 4.5
1.8 Jharsuguda: 0.6, Hirmi: 0.6
2
Dhar: 1.8, Dhule: 1.8 &
0.0 Dhar MP 4.2
0 Neem ka Thana: 0.6
North Central East West Pali Rajasthan Pali 1.9
Patliputra Bihar Patliputra 2.2
Clinker Cement Total Capacity (mtpa) 19.5

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

UTCEM reported a decline in its utilisation rates in FY20 and FY21 due to 1) the
addition of the cement assets of Century and Binani and 2) the overall soft demand
scenario due to the credit crisis in FY20 and COVID-19 led restrictions in 1HFY21.
However, we expect UTCEM to capture a higher market share going forward led by
1) Cement/clinker capacity expansion of 19.5/11.4mtpa over the next two years, 2)
scope to ramp-up its existing grinding facilities, 3) continued government spending
on infrastructure and the fact that it is Category-A player in all Indian regions.
Consequently, we expect capacity utilisation to reach a multi-year high of 86% in
FY24E (last reported 88% in FY10).
Exhibit 31: Capacity utilisation to be at a multi-year high level of 86% in FY24E
95 Market share gains led by 40
acquired assets & new capex
35
90 Ramping up of Jaypee
assets 86.2 30
85 Addition of Binani &
25
Century assets led to
80.6
79.4 79.1 lower util. no. 79.5 20
80
75.0 15
74.6 74.4
75
71.4 10
69.4 5
70
0
65
-5
60 -10
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Capacity utilisation (%) YoY Volume growth (%)--RHS

Source: Company, Systematix Institutional Research

Capex to be funded through internal accruals; to support RoE accretion

UTCEM will spend Rs 65.27bn for the proposed expansion plans (including Rs 10.5bn
for on-going expansions), which reflects a capex cost/ton of less than USD 50. This
capex will be funded through internal accruals. The management expects locational
advantage to reduce the lead distance and aid higher EBITDA. The IRR of these
expansions is estimated to be 15%.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 57
01 September 2021 UltraTech Cement
Exhibit 32: Key elements of UTCEM's growth

Without
Enhanced Low capex endangering
Balance expansion the
Sheet value environment

• Funding through internal • Largely brownfield • WHRS to address ~40% pwer

accruals expansion (72%) requirement.
• Priortise plants having
substantial locational • Average capex cost of • Higher blended percentage
advantage to reduce lead & <USD60 per ton. as majority of capacity
increase EBITDA expansion to cater East &
• Ideal Clinker locations & • Average capex outflow of Central demand.
their GU ~Rs25bn including growth
•Project IRR ~15% capex. • Conversion ratio to improve.

Source: Company, Systematix Institutional Research

UTCEM will continue its capex drive - the management had earlier highlighted that it
will achieve a capacity of 160mtpa in India through the organic route by FY30E. It
continues to explore inorganic expansion opportunities and maintains a liquid cash
balance of Rs 100bn+ for acquisitions. Based on the environmental clearances (ECs)
received by the company, we believe that it has chalked out plans for further
capacity expansion of 21.4mt (apart from the on-going expansions).
Exhibit 33: Long-term plans to reach 160mtpa of domestic Exhibit 34: UTCEM has received ECs for further 21.4mtpa capacity
cement capacity through the organic route expansion
180
16
160.0 13.5
160 14
12
140 130.9
10
(mt)

(mt)

120 111.4 8

100 6
3.6 3.5
4
80
2 0.8
60 0
FY20 FY23E FY30E North Central East South

Domestic grey cement capacities North Central East South

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 58
01 September 2021 UltraTech Cement
Turnaround of acquired assets through higher capacity utilisation, cost reduction
and better cement prices
UTCEM acquired a) the capacities of JP Associates (21.2mt at an EV of Rs 161.9bn), b)
Binani Cement (6.25mt in India at an EV of Rs 80.3bn) and c) the cement assets of
Century Textiles (13.6mt at an EV of Rs 86.2bn – Rs 56.2bn through the issuance of
equity shares and Rs 30bn debt). It turned around the assets of JP Associates within
one year of acquisition led by a) plant modernization - kiln heat rate and power
consumption were higher than at UTCEM’s plants, b) increasing the blending ratio of
the acquired plants, c) higher pet coke usage in the kilns, d) bridging the price
differential between UTCEM and earlier brands - UTCEM’s brands command higher
prices in the markets. The cement assets of JP Associates were operating at a
utilisation rate of just 15% with EBITDA/ton of Rs 350-400 at the time of acquisition.
The current utilisation and profitability of these assets are almost at par with
UTCEM’s brands.
UTCEM Nathdwara Cement (UNCL) was generating an EBITDA/ton of just Rs 90 at the
time of acquisition; however, the profitability of these assets increased to Rs 1,200-
1,300/ton within one year of acquisition led by cost reduction initiatives and strong
prices in the Northern/Gujarat markets.
The acquired assets of Century Textiles operated at 90%+ utilisation in 4QFY21. The
company is working to improve the brand transition from the current 77%, which will
further aid profitability (excluding the 2.4mt Baikunth plant, the production from
which will be continued as Birla Gold for some time).
Exhibit 35: Track record of successfully integrating large acquisitions
Capacity
Company Date Key Rationale Turnaround
(mtpa)

 EBITDA/ton improved from negative to +Rs

 Entry into new markets (Central India,
1,000/t.
Coastal AP and HP).
 Capacity utilisation improved to ~70%+, in line
Jaypee Cement Jun-17 21.2  Unique opportunity to acquire
with UTCEM’s existing plants in a similar market.
+20mtpa of capacity in one go.
 Brand transition completed within 52 days of
 Securing large limestone reserves.
acquisition for all the plants.

 FY20 operating EBITDA >Rs 1,250/t.

 Access to large reserves of high-quality
limestone.  Capacity utilisation increased to 75% vs. ~45%
(pre-acquisition).
Binani Cement Nov-18 6.3  Consolidated UTCEM’s leadership in
the fast-growing Northern and  Brand transition completed in 21 days while
Western markets in India. completed disposal of one of the overseas non-
core assets.

 Strengthened position in the East while  Achieved EBITDA per ton of Rs 700/t in 2QFY21.
penetrated further in Central &
Western markets.  Capacity utilisation increased over 80% within 6
Century Cement Oct-19 14.6 months of acquisition.
 Added ~6,500 dealers, increasing the
network size to ~29,000.  Completed brand transition for 72% volume.

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 59
01 September 2021 UltraTech Cement
Cost-saving remains a key focus area
UTCEM is trying to reduce opex through a) reduction in lead distance continuously
since Jun’17: lead distance was down 3% YoY in FY18 and 5% YoY in FY19 (according
to its Annual Report, lead distance is down 10% since Jun’17). Freight cost/ton for
the company increased at a CAGR of just 0.5% between FY16-21 against diesel price
increase of 9% in the same period; b) higher green energy share: The share of green
energy (WHRS/Solar power) increased to 13% in FY21 vs. 11% in FY20 and the target
is to increase it to 34% by FY24. The current WHRS capacity is 125MW which will be
increased to 304MW by FY23/mid-FY24. The current cost of power generation is ~Rs
5/unit; cost of power generation through WHRS will be Rs 0.5-0.75/unit; c) control
on fixed costs during the COVID-19 period: Fixed costs in FY21 were maintained at
the FY19 levels. The MMDR Amendment Act will further aid cost-savings of Rs 2bn+
(Rs 20/ton on FY22E sales volumes) every year from 20th Mar-21 as additional royalty
on acquired assets has been withdrawn (royalty is being paid on all JP and Century
assets).
Exhibit 36: Freight cost increase is lower than diesel cost Exhibit 37: Electricity consumption remained stable over the last
inflation few years
35 100 93.9
30 87.3
90 82.3
25 78.7 76.9 78.9 79.8 78.2
80
20
70
15
(kwh/ton)

60
(%)

10
5 50
0 40
-5 30
-10 20
-15
10
Q1FY19

Q2FY20
Q1FY18
Q2FY18
Q3FY18
Q4FY18

Q2FY19
Q3FY19
Q4FY19
Q1FY20

Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Q4FY21

0
FY06 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Diesel price change Freight cost change Electricity consumption

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 38: Clinker factor continues to improve Exhibit 39: Improvement in Green power usage
88 86.4 14 13
86
84 12 11
10
82 10
80 78.7
77.3 8 7 7
(%)

78 76.8
(%)

76.5 76.2
76 75.2 75.0 6 5
74 4
72 2
2
70 0.3
68 0
FY06 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Clinker factor Green Power (WHRS+ Solar)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 60
01 September 2021 UltraTech Cement
Increase in WHRS and solar power capacities to reduce costs, carbon emissions
UTCEM is increasing its WHRS capacity over the last few years and its current WHRS
capacity is 125MW which will be increased to 302MW by FY24E. Besides helping the
companies meet ESG standards, WHRS aids cost reductions too as the cost of power
generation through thermal power plants is ~Rs 4-5/kwh, whereas grid power cost is
~Rs 6-7/unit. Power generation through WHRS is ~Rs 0.75-1/unit. We believe that
19.4% of power requirements will be met through WHRS by FY24E (the company’s
target is 26%) and 23.2% by FY25E, whereas solar power should contribute to 9-11%
of power requirements. We expect the company to achieve incremental cost savings
of Rs 40/ton through WHRS by FY25E. UTCEM will increase solar and wind power
capacity to 350MW+ by FY22E from 125MW in FY21 and we expect it to further
invest in solar power capacities over the next few years. Cost savings through solar
power plants would be Rs 8-10/ton.
Exhibit 40: Increase in power generation through WHRS/solar Exhibit 41: Cost savings expected through WHRS
power plants
25 23.2
80 73
19.4 70
20 61
16.8 60 53
15 50
12.4 (Rs/ton)
39
(%)

11.2
9.5 40 33
8.9 9.4 9.0
10 8.4 29
30 23
5.6
3.6 20
5
1.6 2.1
10
0 0
FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY19 FY20 FY21 FY22E FY23E FY24E FY25E

Power through WHRS Power through Solar plants Savings through WHRS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Higher production of blended cement and increased usage of WHRS/solar power

plants will help the company reduce carbon emissions. UTCEM had achieved CO2
reduction of 19.14% over the base year of FY06 till FY20. The target is to reduce
carbon intensity by ~27% by 2032 vs. 2017 emission levels.
Exhibit 42: Targets to reduce carbon emissions
800 759

700 644 633 632 626 619 614

600
500 430
(kg/ton)

400
300
200
100
0
FY06 FY15 FY16 FY17 FY18 FY19 FY20 FY32E

CO2 emissions (kg/ton)

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 61
01 September 2021 UltraTech Cement
UltraTech Building Solutions: A retail chain focusing on all construction needs
UTCEM pioneered the UltraTech Building Solutions (UBS) concept to provide
individual home builders with a one-stop-shop solution for building their homes. This
is the first pan-India multi-category retail chain catering to the needs of individual
home builders (IHBs). The purpose of this initiative is to engage with home builders
at all stages of the construction cycle, empower them with quality construction
products and services, and assist in the completion of their homes. UBS has a
presence in 21 states through 2,300+ outlets. 70% of these outlets are in rural and
Tier-3 geographies and address 60%+ of customer needs for building construction.
UTCEM has also expanded its product portfolio by offering value-added products like
Dry Mix Mortars (plasters & mortars, adhesives & sealants, flooring, repair &
rehabilitation) and waterproofing chemicals (liquid waterproofing & cementitious
waterproofing).
Exhibit 43: UTCEM enhancing its brand presence/equity by offering all building products under one roof

Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 62
01 September 2021 UltraTech Cement

Financial Highlights
We estimate UTCEM to report revenue CAGR of 12.8% at Rs 641bn in FY21-24E led
by 11.4% volume growth. Grey cement realisation has remained strong since
1QFY20, leading to strong realisation growth for the company (CAGR of 7.9% over
FY19-21). We factor in realisation CAGR of 2.3% over FY21-24E.
Exhibit 44: Expect UTCEM to report ~13% CAGR driven by Exhibit 45: While favourable demand-supply scenario should keep
11.5% volume growth cement prices elevated
700 40 8
641 6.5
650 34 35 6 5.9 6.0
600 583 30
24 4 3.8
550 525 25 1.9
3.0 2.0
22 21 2
500 20 2.0 1.5
(Rs bn)

447 17 0.7
450 416 424 15 0
17 11 10 0.1
400 10 -2
9 (1.2)
350 5 9 5 (2.0)
310 4 -4
2
300 0
250 -5 -6 (6.1)
-6
200 -10 -8
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Sales % YoY Sales Growth % YoY Volume Growth--RHS % YoY Cement NSR Growth % YoY Blended NSR Growth

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Along with revenue growth, we expect UTCEM to be more cost-efficient by 1)

investments in renewable power (aims to source 34% of power requirement through
WHRS and solar units), 2) increasing sale of premium products (10% in FY21 vs. 8% in
FY20; the target is to increase it to 15% over the next few years) and higher blended
sales, 3) reducing logistics cost by leveraging the synergy benefits derived from the
acquired capacities (evident from the downward trend in the lead distance in the
past 2-3 years) and 4) sweating the acquired assets. As a result, we expect
EBITDA/ton to improve to Rs 1,489 by FY24E vs. Rs 1,364 in FY21.
Exhibit 46: Expect UTCEM to report an all-time high unit Exhibit 47: Estimation of higher tax outflow has a bearing on
EBITDA in FY24E UTCEM’s operational cashflows
1,600 1,489 30
1,439
1,364 1,379 200 120
1,400
25 180
1,141 110
1,200 160
996 20 140 100
1,000 868
(Rs/ton)

120 90
(Rs bn)

800 15 100
80 80
600
10
60 70
400
40
5 60
200 20
0 0 0 50
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA/ton EBITDA Growth %---RHS EBITDA CFO CFO as % of EBITDA (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 63
01 September 2021 UltraTech Cement
UTCEM has generated strong profits over the last few years led by a) higher
realisation - blended realisation grew at a CAGR of 3.6% over FY19-21 and b) lower
opex - opex/ton in FY21 was at FY18 levels and declined at a CAGR of 1.7% over
FY19-21. This led to EBITDA/ton growing at a CAGR of 25.3% over FY19-21. We
expect EBITDA/ton to grow at a CAGR of 1.4% over FY21-24E on a strong base of the
last two years.
The improvement in profitability and the release of working capital (cumulative
reduction of Rs 28.5bn in FY20/21) led to improvement in operating cash flows (OCF)
and free cash flows (FCF) over the last few years. OCF and FCF grew at a CAGR of 48%
and 75%, respectively, between FY18-21.
Given the strong top-line growth and continued focus on controlling opex, we expect
UTCEM to generate robust OCF of Rs 341bn over FY21-24E. Higher OCF will help
UTCEM 1) deleverage its balance sheet and 2) fund the near-term capacity expansion
(19.5mtpa) through internal accruals. We expect FCF of Rs 245bn over FY21-24E.
COVID-19 acted as a catalyst in improving the working capital profile of the cement
players as the closure of factories created a shortage of cement when demand
recovered. This helped in controlling inventories and receivables. A few players are
gradually shifting to the cash-and-carry model which can be the new normal for the
industry. Being the industry leader, UTCEM’s receivable days are expected to reduce
from a month in FY18 to 17 days in FY24E. Continued investment in technology and
higher reliance on green power would lower inventory days as well.
Exhibit 48: Robust earnings to help fund capex through internal Exhibit 49: A gradual change in the trade channels should lead
accruals to lower receivable days
140 0.6 140
119
120 0.5 120 110
98 100
100 100 88 90 92
0.4
80 80
(Rs bn)

0.3
60 60
0.2 38 36 36
40 40 33 30 28 26
20 0.1 20
26 24 21 21 20 18 17
0 0.0 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E

CFO FCFF Capex/CFO- RHS Debtor days Inventory Days Creditors days

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

UTCEM’s gross debt increased to Rs 253.4bn in FY19 from Rs 84.7bn after the
acquisition of the assets of JP Associate, Binani Cement and Century Textiles. The
company had net debt/EBITDA of 3.1x in FY19 vs. 0.2x in FY17 post these
acquisitions. It generated a free cash flow of Rs 179.5bn in FY20-21, which helped in
bringing down the net debt to Rs 75.9bn in Mar-21. Net Debt/EBITDA improved to
0.66x in Mar-21 vs. 1.97x in Mar-20. With strong cash generation going forward, the
company should become net cash positive in FY23E. The management has no plans
to increase capacities outside India as domestic markets offer organic opportunities
while inorganic opportunities may also appear. Excess cash will be returned to
shareholders; the board has decided on a dividend payment of 15-25%, which can be
increased further.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 64
01 September 2021 UltraTech Cement
Exhibit 50: Expected to turn net cash positive in FY23E Exhibit 51: Continued improvement in leverage
300 4 3.1
250 3 2.5
200 3 2.0
150 2
2 1.1
(Rs bn)

100

(x)
1 0.7
50
1 0.2 0.2
0 0.6 0.7 (0.0)
0 0.5 (0.2)
-50 0.3 0.2
-1 0.0 0.1 (0.2)
-100 (0.6)
-1

FY20
FY16

FY17

FY18

FY19

FY21

FY22E

FY23E

FY24E
-150
FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Gross debt Net debt Net D/E Net debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

UTCEM’s RoE improved to 13.4% in FY21 vs. 10.1% in FY18 (8.4% in FY19) led by a)
improvement in profitability as cement prices increased in the
Northern/Central/Gujarat markets, b) cost savings – an increasing proportion of
WHRS, lower fixed costs, reduction in the lead distance and c) improved profitability
of the acquired assets of Binani Cement and Century Textiles. The debt reduction led
to an interest expense decline of 25.4% in FY21. We expect RoE to improve to 16.3%
by FY24E led by a higher assets turnover as capacity utilisation is expected to
improve, continued reduction in debt and improvement in EBIT margin (24% in
FY24E vs. 21.5% in FY19).
Exhibit 52: Du-pont analysis
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 70.5% 70.2% 70.2% 68.7% 68.7% 68.7% 68.7%
PBT/EBIT 74.7% 66.8% 72.2% 84.5% 87.4% 90.9% 93.6%
EBIT/Sales 15.8% 12.9% 16.9% 21.5% 22.4% 23.3% 24.0%
Asset turnover (x) 0.73 0.73 0.64 0.65 0.72 0.76 0.78
Assets/Equity (x) 1.67 1.90 1.82 1.65 1.55 1.45 1.35
ROE (%) 10.1 8.4 10.0 13.4 15.0 15.9 16.3
Source: Company, Systematix Institutional Research

RoCE is expected to improve to 18.8% in FY24E vs. 13.9% in FY21 on the back of an
improvement in margins. RoIC is expected to improve to 17% in FY24 vs. 10.7% in
FY21 as an improvement in profitability will support strong cash generation.
Exhibit 53: Return ratios to improve over FY21-24E
20 18.8
18 17.0
16.3
16
13.4 13.9
14
11.5
12 10.1 10.7
(%)

10 9.0
8
6
4
2
0
RoE (%) RoCE (%) RoIC (%)

FY18 FY21 FY24E

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 65
01 September 2021 UltraTech Cement

Cash flow analysis & corporate governance

FCF generation: UTCEM generated cumulative FCF of Rs 279bn between FY17-21.
FCF utilisation: Of the total FCF of Rs 289bn, 10% has been used to pay dividends (5-
year average pay-out ratio is 13%), 57% to repay debt and 25% of FCF has been used
towards interest payment.
FCF expectation: Despite better earnings, we expect FCF to decline to Rs 63bn in
FY22E due to a) the reduction in OCF - higher tax and increase in working capital and
b) capex for expansion projects – Rs 43.1bn in FY22E vs. Rs 18.4bn in FY21.
Earnings quality: During the last 10 years, UTCEM has earned a cumulative PAT of Rs
288bn against which it generated OCF of Rs 555bn (1.93x profits).
Exhibit 54: FCF to remain positive despite capex plans Exhibit 55: Earnings quality reflects in cumulative OCF
120 600 555 250
107 104
100 500
200
78
80 73 400 363
63 150
(Rs bn)

(Rs bn)
60 274 288
300
43
100
40 200 170
117
20 50
100

0 0 -
FY19 FY20 FY21 FY22E FY23E FY24E 3 Yrs 5 Yrs 10 Yrs
Free cash flow Cumulative PAT Cumulative OCF Cumulative OCF % as of [Link]

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 56: Contingent liabilities

(Rs mn) FY16 FY17 FY18 FY19 FY20 FY21
Excise Duty and Service Tax Matters 8,781 10,062 11,786 15,668 13,518 15,185
Sales-tax / VAT / Entry Tax Matters 3,203 3,434 4,325 5,495 5,467 10,163
Others 9,544 9,011 10,337 21,616 20,100 20,941
Total 21,528 22,506 26,447 42,779 39,086 46,289
% of net worth 10% 9% 10% 13% 10% 10%
Source: Company

Exhibit 57: KMP’s renumeration and pledging details

Other key monitorables FY16 FY17 FY18 FY19 FY20 FY21
Remuneration to Directors & KMPs (Rs mn) 362 354 392 368 257 232.6
% of PBT 1.10% 0.90% 1.10% 1.00% 0.50% 0.29%
Auditor's remuneration (Rs mn) 39 36 43 55 67 82.7
% of PBT 0.11% 0.09% 0.12% 0.15% 0.13% 0.10%
Pledged shares (%) NIL NIL NIL NIL NIL NIL
Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 66
01 September 2021 UltraTech Cement

Systematix vs. Consensus

Our revenue estimates are largely in-line with the Bloomberg consensus for FY22E
and FY23E. However, we expect UTCEM to derive significant cost savings from 1)
34% power substitution through the renewable source, 2) logistics cost savings
(synergy benefit from acquired assets) and 3) better product mix & higher premium
sales resulting in higher EBITDA and thus higher than consensus estimates.
Exhibit 58: Bloomberg vs. our estimates
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 512 571 631
Systematix est. 525 583 641
% Difference 3% 2% 2%
EBITDA (Rs bn)
Consensus 129 147 174
Systematix est. 137 156 175
% Difference 7% 6% 0%
EBITDA Margin (%)
Consensus 25% 26% 28%
Systematix est. 26% 27% 27%
Difference (bps) 97 100 (32)
Source: Bloomberg, Systematix Institutional Research

Exhibit 59: Key Assumptions

Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Grey Cement Sales Volume (mt) 63 85 81 85 99 108 117
Grey Cement Realization (Rs/ton) 4,344 4,080 4,233 4,751 4,893 4,991 5,091
Blended Realization (Rs/ton) 5,020 4,917 5,236 5,274 5,278 5,381 5,464
Per tonne costs
Raw material 836 825 804 836 795 815 845
Employee cost 286 271 311 277 257 251 247
Power & Fuel 1,001 1,115 1,051 982 1,060 1,075 1,058
Freight 1,155 1,219 1,201 1,184 1,204 1,236 1,272
Other expense 652 619 727 630 583 566 553
Total Cost 3,930 4,049 4,095 3,910 3,899 3,941 3,975
EBITDA (incl. other income) 971 868 1,141 1,364 1,379 1,439 1,489
Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 67
01 September 2021 UltraTech Cement

Key downside risks

1) Prolonged pandemic related restrictions/lockdowns: We estimate UTCEM to
report ~17% volume growth in FY22E; however, continued localised lockdowns
could act as a downside risk to our estimate. Besides hurting demand,
lockdowns/restrictions impact the mobilisation of labour at construction sites,
thus delaying the process. We derive confidence from the vaccination pace in
India and expect economic recovery and normalcy to be attained by 2HFY22E.
2) Inflationary pressures in fuel costs: There has been a steep rise in the prices of
pet coke, coal and diesel over the last few months. Pet coke price is up ~75%
over the last year, whereas imported coal price has increased by 30%+. The
current pet coke prices are up ~40% vs. 4QFY21 consumption prices. Though
cement companies are trying to control energy costs by changing their fuel mix
(lower pet coke usage, usage of Australian coal etc.), continued escalation in
coal/pet coke prices could impact our earnings estimate, if the industry is unable
to pass on the cost increases to consumers.
3) Slowdown in government/rural spending: Based on the management
commentaries of various cement players, demand (in the past 12-18 months) is
led by government spending on infrastructure. Thus, slow or curtailed
government spending could delay the recovery process. The second wave of
COVID had a higher impact in rural areas compared to the first wave. Rural
demand was resilient last year which aided volume recovery for the industry. A
slowdown in rural areas may impact volume growth for the industry.
4) Aggressive inorganic growth plans: UTCEM has been successful in turning
around the large acquired cement assets of Century Textiles, JP Group and
Binani. The management believes that inorganic expansion opportunities of
61mtpa in the industry exist and it will maintain liquid reserves of Rs 100bn+ for
the same. An aggressive inorganic expansion may lead to higher debt and can
impact the return ratios for a few years.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 68
01 September 2021 UltraTech Cement

Valuation and View

UTCEM is the market leader in most of its markets. It has steadily invested in
capacity expansion which has helped it become one of the largest players across all
regions and improve its market share significantly. Its capacities increased from
48.8mtpa in FY12 to 113.4mtpa in FY21, a CAGR of 9.8% vs. the industry’s capacity
CAGR of 5.2% in the same period. ~70% of capacity additions over FY12-21 were
through the inorganic route. The company plans to further increase its grinding
capacities by 19.5mtpa by FY23E. Through organic expansions, it aspires to increase
its domestic grey cement capacity to 160mtpa by FY30E vs. 111.4mtpa in FY21.
Further, the management believes that there are opportunities for 61mtpa of
inorganic expansion and it will maintain Rs 100bn+ of liquid reserves for such
acquisitions.
Exhibit 60: UTCEM’s capacity growth outpaced industry growth over FY12-21
600
529.3
500

400
334.6
(mt)

300

200
113.4
100 48.8

0
UltraTech Industry capacities

FY12 FY21

Source: Systematix Institutional Research, Company, Industry

Continued capacity expansions led to an increase in UTCEM’s gross debt to Rs 253bn

in FY19 vs. Rs 42bn in FY12. Net debt increased to Rs 231bn in FY19 vs. Rs 13bn in
FY12. Net debt/EBITDA deteriorated to 2.5x in FY19 (3.1x in FY20) vs. 0.3x in FY12.
The significant improvement in profitability and working capital reduction led to an
OCF CAGR of 45% between FY19-21 which in turn, led to a reduction in debt. Gross
debt reduced to Rs 205bn in FY21, while net debt reduced to Rs 76bn. Net
debt/EBITDA improved to 0.66x in FY21. We expect the company to become cash
positive in FY23E despite the on-going capex plans.
UTCEM’s RoE improved to 13.4% in FY21 vs. 10.1% in FY18 (8.4% in FY19). We expect
its RoE to improve to 16.3% by FY24E led by higher assets turnover (capacity
utilisation is expected to improve), continued reduction in debt and improvement in
EBIT margin (24% in FY24E vs. 21.5% in FY19). RoCE is expected to improve to 18.8%
in FY24E vs. 13.9% in FY21 on the back of an improvement in margins. RoIC is
expected to improve to 17% in FY24 vs. 10.7% in FY21 as the improvement in
profitability will support strong cash generation.
The stock trades at 16.7x/14.3x/12.3x FY22E/23E/24E EV/EBITDA and USD
251/222/213 FY22E/23E/24E EV/EBITDA. It has traded at an average EV/EBITDA of
14.3x in the last 10 years. Going forward, with the improvement in profitability (EPS
expected to grow at a CAGR of 21.1% over FY21-24E), return ratios and balance
sheet, we expect it to trade at higher multiples. We value the company at 17x FY23E

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 69
01 September 2021 UltraTech Cement
EV/EBITDA to arrive at a target price of Rs 9,275, an upside of 18.4% from the CMP.
We initiate coverage on the stock with a BUY rating. At our TP, the stock will trade at
17x/14.7x FY23E/24E EV/EBITDA and USD 263/255 FY23E/24E EV/ton.
Exhibit 61: 1- year forward EV/EBITDA Exhibit 62: 1-year forward EV/ton
25.0 300

20.0 250

200
15.0

(US$/ton)
150
(x)

10.0
100
5.0
50

0.0 -
Aug-08

Aug-21
Aug-07

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
-5.0

1-year fwd EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 70
01 September 2021 UltraTech Cement

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 424,299 447,258 525,063 583,032 641,390 Equity share capital 2,886 2,887 2,887 2,887 2,887
Growth (%) 2.0 5.4 17.4 11.0 10.0 Reserves & surplus 387,627 438,918 495,692 564,866 644,723
Total Expenditure 331,827 331,579 387,842 427,079 466,645 Shareholders Funds 390,513 441,804 498,579 567,753 647,609
EBIDTA 92,472 115,679 137,221 155,953 174,745 Loan Funds 230,190 204,878 192,559 164,559 136,559
Growth (%) 25.9 25.1 18.6 13.7 12.0 Net Deferred Taxes 49,120 60,407 60,407 60,407 60,407
EBIDTA % 21.8 25.9 26.1 26.7 27.2 Total Liabilities 669,822 707,089 751,545 792,719 844,575
Depreciation 27,227 27,002 27,734 28,744 30,019 Net block 508,985 491,918 509,184 525,440 515,421
EBIT 65,245 88,677 109,487 127,209 144,727 Capital WIP 9,196 16,867 15,000 3,000 3,000
EBT 51,840 81,162 102,895 123,472 144,087 Investment 59,287 121,781 121,781 152,781 202,781
Tax 15,413 25,387 32,185 38,621 45,069 Current Assets 214,730 231,270 273,191 281,106 295,412
Effective tax rate (%) 29.7 31.3 31.3 31.3 31.3 Inventories 41,834 40,180 43,156 44,726 45,688
Adjusted PAT 36,427 55,775 70,710 84,851 99,017 Sundry Debtors 23,832 25,717 28,051 28,752 29,873
Growth (%) 44.9 53.1 26.8 20.0 16.7 Cash and Bank 5,399 20,076 50,603 50,159 56,292
Net Margin (%) 8.6 12.5 13.5 14.6 15.4 Current Liab & Prov 122,376 154,747 167,612 169,608 172,039
PAT after MI 57,509 53,189 70,710 84,851 99,017 Net current assets 92,355 76,523 105,580 111,498 123,373
Growth (%) 139.58 (7.5) 32.9 20.0 16.7 Total Assets 669,822 707,089 751,545 792,719 844,575
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PBT (Ex-Other income) 51,827 78,576 94,685 114,884 134,916 Profitability (%)
Depreciation 27,227 27,002 27,734 28,744 30,019 EBITDA Margin 21.8 25.9 26.1 26.7 27.2
Interest Provided 19,917 14,857 14,803 12,325 9,810 Net Margin 8.6 12.5 13.5 14.6 15.4
Other Non-Cash items -5,489 -5,785 0 0 0 ROCE 10.8 13.9 16.1 17.6 18.8
Chg in working cap 5,157 23,289 1,470 -6,361 -5,742 ROE 10.0 13.4 15.0 15.9 16.3
Tax paid -8,914 -12,910 -32,185 -38,621 -45,069 RoIC 7.6 10.7 13.5 15.2 17.0
Operating Cashflow 89,724 125,029 106,507 110,971 123,934 Per Share Data (Rs)
Capital expenditure -16,868 -18,414 -43,133 -33,000 -20,000 EPS 126.2 193.2 245.0 294.0 343.0
Free Cash Flow 72,856 106,615 63,374 77,971 103,934 CEPS 220.5 286.8 341.0 393.5 447.0
Other income 2,324 1,146 8,210 8,588 9,170 BVPS 1,353.0 1,530.6 1,727.3 1,966.9 2,243.6
Investments -27,380 -71,322 0 -31,000 -50,000 DPS 12.5 37.0 40.0 45.0 55.0
Investing Cashflow -25,056 -70,176 8,210 -22,412 -40,830 Valuations (x)
Equity Capital Raised -3 138 0 0 0 PER 62.1 40.5 32.0 26.7 22.8
Loans Taken / (Repaid) -27,454 -25,149 -12,319 -28,000 -28,000 P/CEPS 35.5 27.3 23.0 19.9 17.5
Interest Paid -19,502 -14,805 -14,803 -12,325 -9,810 P/BV 5.8 5.1 4.5 4.0 3.5
Dividend paid (incl tax) -3,800 -3,748 -13,935 -15,677 -19,161 EV / Sales 5.8 5.2 4.4 3.8 3.4
Income from investments 0 0 0 0 0 EV / EBITDA 26.4 20.2 16.7 14.3 12.3
Others 0 0 0 0 0 Dividend Yield (%) 0.2 0.5 0.5 0.6 0.7
Financing Cashflow -50,759 -43,565 -41,057 -56,002 -56,971 Gearing Ratio (x)
Net chg in cash -2,959 -7,125 30,527 -443 6,133 Net Debt/ Equity 0.5 0.2 0.1 (0.0) (0.2)
Opening cash position 8,358 27,201 20,076 50,603 50,159 Net Debt/EBIDTA 2.0 0.7 0.2 (0.2) (0.6)
Closing cash position 5,399 20,076 50,603 50,159 56,292 Working Cap Cycle (days) -29.7 -63.0 -58.5 -52.1 -47.2
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 71
 Systematix
Institutional Equities

Shree Cement 01 September 2021

Consistent performer but valuations rich

INITIATING COVERAGE Shree Cement (SRCM), the second-largest cement company in India, has
Sector: Cement Rating: HOLD consistently added capacity with minimal leveraging of its balance sheet. It is the
lowest-cost cement producer led by its innovative/ahead of the curve initiatives. It
CMP: Rs 28,296 Target Price: Rs 29,855
has controlled costs through higher dependence on green energy and split grinding
Stock Info units vs. peers and captive production of synthetic gypsum. A wide distribution
Sensex/Nifty 57,552/17,132 network, multi-brand strategy and a higher share of premium products position it
Bloomberg SRCM IN favourably vs. peers and have improved its realisations. After increasing the
Equity shares (mn) 36 capacity by 4.8x between FY09-21, the management intends to double capacity
52-wk High/Low Rs 32,050/18,214 over the next 6-7 years. We are confident on the seamless execution of its
Face value Rs 10 expansion plans given its track record of having the lowest capital cost for plant
M-Cap Rs1,021bn/ USD 14bn commissioning and a strong balance sheet. We expect an EBITDA CAGR of 10.6%
3-m Avg volume USD 19.4mn over FY21-24E and RoIC of 41.8% in FY24E. While SRCM deserves to trade at a
premium due to its superior track record and continued growth, we initiate
Financial Snapshot (Rs mn)
Y/E March FY22E FY23E FY24E
coverage with a HOLD given its rich valuation.
Sales 146 162 179 Differentiated approach for expansions, aims to double capacities
EBITDA 42 48 54
PAT 24 27 30 SRCM’s differentiated approach (engagement with different contractors for
EPS (Rs) 670.4 753.5 845.3 expansion projects, smaller and identical sized kilns etc.) results in the timely
PE (x) 42.2 37.6 33.5 execution of expansion projects. It also ensures minimal pressure on its balance
EV/EBITDA (x) 22.2 19.3 16.8 sheet (net cash positive even after a 4.8x increase in its capacity between FY09-21).
RoE (%) 14.8 14.7 14.5
The company has been consistent in its expansion program (capacity/sales volume
RoCE (%) 19.6 19.3 19.1
CAGR of 19.2%/14.3% over FY05-21) and the management expects to further double
Dividend yield (%) 0.2 0.3 0.3
its capacity over the next 6-7 years – while COVID-led issues have delayed this plan,
Shareholding pattern (%) we expect SRCM to commence its expansion activities in the near term.
Jun-21 Mar-21 Dec-20
Enjoys cost leadership with innovative and ahead of the curve initiatives
Promoter 63 63 63
–Pledged - - - The company has pioneered many cost-saving techniques to become India’s lowest-
FII 13 13 12 cost cement producer. It maintains cost-efficiency through a high dependency on
DII 10 11 11
waste heat recovery systems (40%+ power through green energy sources) and split
Others 14 14 14
grinding units, the usage of synthetic gypsum generated through captive sources
Stock Performance (1-year) (60%+ of gypsum requirement met in-house) and the largest single location kiln in
33000 the North. A strong balance sheet and cost competence should further boost its
31000
29000 growth and profitability.
27000
25000
23000
Rich valuations to limit the upside
21000
19000
17000
SRCM enjoys one of the best return ratios in the cement sector. Its RoIC improved to
15000 24.7%/37.8% in FY20/FY21 from 21.7% in FY19; we expect a further improvement to
Nov-20

Jan-21

Feb-21
Aug-20

Sep-20

Mar-21

Apr-21

Jul-21

Aug-21
Oct-20

Dec-20

May-21

Jun-21

41.8% by FY24E. The stock trades at 22.2x/19.3x/16.8x FY22E/23E/24E EV/EBITDA

Shree Sensex
and USD 277/272/265 FY22E/23E/24E EV/ton. It has traded at an average EV/EBITDA
of 20.2x in the last 7 years. With the improvement in profitability (EBITDA CAGR of
Sanjeev Kumar Singh 10.6% over FY21-24E), strong balance sheet, stable return ratios and the doubling of
sanjeevsingh@[Link] capacity, we expect it to maintain its premium valuation. We value the stock at 20x
+91 22 6704 8017 FY23E EV/EBITDA to arrive at a target price of Rs 29,855 (an upside of 5.5% from the
Rahul Jain CMP) and initiate coverage with a HOLD rating.
rahuljain@[Link]
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 72
01 September 2021 Shree Cement

Story in charts
Exhibit 1: Implementation of plants ahead of schedule

Source: Company, Systematix Institutional Research

Exhibit 2: Capital cost for plants is the lowest amongst peers Exhibit 3: Consistent in capacity expansions
16,000 70.0

43.4
50 60

40.4
14,000 60.0

37.9
45
50

34.9
12,000 50.0 40

29.3
10,000 40
(Rs/ton)

40.0 35

25.6
(mt)

8,000

23.6
(mtpa) 30 30
30.0
6,000

(%)
25

17.5
4,000 20.0 20

13.5
13.5
13.5
20

12.0
2,000 10.0 15

9.1
10

6.0
- -
4.5
10
3.2

0
UltraTech

Birla Corp
ACC

JK Lakshmi

Orient
Ramco
Ambuja

JK Cement

India Cements
Shree

5
0 -10
FY10

FY17
FY06
FY07
FY08
FY09

FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
Capex/ton (Rs) Capacity increase (FY11-20) Installed capacities (Domestic markets) YoY growth

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 4: Enjoys leadership position in the Northern region Exhibit 5: Future capacities may be planned across regions (ex-
Central region)
90 14
6
80 7 7 7 12.0
6 6 12
70 24 10.5
21 23 23 23
60 19 10 9.0
8 8.3 8.0
50 8 8 7 9 9 8
(%)

8 6.5
(mt)

40 8 8 8 8 8
11 11 10 10 6
30 11 11
20 18 4 3.5
14 14 17
22 22 2.5
10 6 6 6 6 2
0 6 6 6 6 6- 6-
FY16 FY17 FY18 FY19 FY20 FY21 0
ACC Binani UltraTech Ambuja North West East South
JK Lakshmi JK Cement Shree Cement Wonder Cement Clinker Cement

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 73
01 September 2021 Shree Cement
Exhibit 6: Lowest-cost cement producer vs. peers Exhibit 7: Green energy contributes to 40%+ of its power
requirements
4,500 4,077 4,077 100
3,844 3,730 3,851
4,000 3,593 3,626 3,739 90
3,406 36 36 36
3,500 3,118 80 37 41 45 48
3,000 70
(Rs/ton)

2,500 60

(%)
2,000 50
1,500 40
30 64 64 64 63 59
1,000 55 52
500 20
10
0
0
ACC

JKCE

SRCM

ICEM

JKLC

Dalmia
BCORP

TRCL
UTCEM

ACEM
FY15 FY16 FY17 FY18 FY19 FY20 FY21

FY21 Conventional Energy Green Energy

Source: Company, Systematix Institutional Research *UTCEM and JKCE’s grey cement Source: Company, Systematix Institutional Research
production cost is based on our assumptions

Exhibit 8: High dependence on split grinding units Exhibit 9: The use of synthetic gypsum has increased significantly
90 100
79 0 0 0 0 0 0 2 4 8 10 13
80 90 15
24
70 80 34 38 40
63
60 57 59 53
60 70
63 63
60 67 63
50
69
(%)

40
(%)

37 39 50
40 35 85
40 76
30 23 66 62
30 60
20 47
20
34 32
10 24 27
10 18
0
0 0
Shree UTCEM ACEM ACC JKLC JKCE FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

North East Gypsum Procurement Synthetic Gypsum Production Chemical Gyspusm

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 10: 1- year forward EV/EBITDA Exhibit 11: 1-year forward EV/ton
30
300
24
250
18
(US$/ton)

200
(x)

12
150
6
100
0
50
Aug-11
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 74
01 September 2021 Shree Cement

Company Background
nd Shree Cement (SRCM) is one of India's most profitable cement manufacturing
Shree Cement is India’s 2 largest
companies, given its higher productivity, plant location and backward integration. It
cement player with 43.4mtpa capacity.
started operations in 1985 with the commissioning of its first 0.6mtpa integrated
plant at Beawar, Rajasthan. Its expansion plans took off post-2006 and since then, its
India capacity has increased to 43.4mtpa, making it the second-largest cement player
(3rd largest group). Most of its capacity expansions have been through the organic
route (acquired only a 1.5mtpa grinding capacity in the domestic markets).
SRCM expanded its presence in global markets in July’18 through the acquisition of
Union Cement Company (UCC) in Ras Al Khaimah, UAE. At the time of acquisition,
UCC had a clinker/cement capacity of 3.3mtpa/4mtpa.
It commissioned its first coal-based power plant in 2003 and its first waste heat
recovery system (WHRS) in 2008 in Beawar, Rajasthan. It has a coal-based power
capacity of 508MW (including 300MW merchant power plants), while its India-based
WHRS capacity is 211MW. It also has wind power plants of 29MW and solar power
plants of 2MW. The WHRS capacity at its UAE plant is 29.5MW.
SRCM had a presence only in the Northern region till FY13. It started diversifying into
other regions and commissioned a grinding unit of 2mtpa at Aurangabad, Bihar in
FY14 and subsequently, its first integrated plant (clinker and cement capacities of
2.6mtpa each) in Baloda Bazar, Chhattisgarh. It commissioned its first grinding unit in
the Central region (Bulandshahr, Uttar Pradesh) in FY16. In FY18, it commissioned an
integrated plant in the Southern region (Kodla, Karnataka) with a clinker/cement
capacity of 2.4mtpa/3mtpa).
The company follows a multi-brand strategy, comprising three brands - Bangur
Cement, Shree Jung Rodhak Cement and Rockstrong to cater to different market
segments. In FY19, it introduced two premium brands - Roofon and Bangur Power. It
also produces Autoclaved Aerated Concrete (AAC) Blocks – a lightweight, precast
building material. SRCM has a network of 20,250 dealers and 746 distributors spread
across 18 states.
Exhibit 12: SRCM’s installed capacity and regional presence
Region Plant location State Clinker capacity (mtpa) Cement capacity (mtpa)
North Ras Rajasthan 15.0 7.0
North Khushkhera Rajasthan 3.5
North Beawar Rajasthan 3.0 3.6
North Jobner Rajasthan 1.5
North Suratgarh Rajasthan 5.4
North Laksar Uttarakhand 1.8
North Panipat Haryana 1.5
North-Total 18.0 24.3
Central Bulandshahr Uttar Pradesh 2.0
Central-Total 2.0
East Baloda Bazar Chhattisgarh 9.2* 3.0
East Burudih Jharkhand 2.5
East Aurangabad Bihar 5.6
East Athagarh Odisha 3.0
East-Total 9.2 14.1
South Kodla Karnataka 2.4 3.0
South-Total 2.4 3.0
West Patas Maharashtra 3.0^
West-Total 3.0
Domestic capacity 29.6 46.4
Middle East Ras Al Khaimah UAE 3.3 4.0
Consolidated capacity 32.9 50.4
Source: Company, Systematix Institutional Research, * 3.98mtpa Under commissioning; ^under commissioning

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 75
01 September 2021 Shree Cement

Manufacturing facilities
Exhibit 13: Bulandshahr plant, Uttar Pradesh (2mtpa) Exhibit 14: Roorkee plant, Uttarakhand (1.8mtpa)

Source: Industry Database Source: Industry Database

Exhibit 15: Wind Power plant at Kodla, Karnataka Exhibit 16: Beawar plant, Rajasthan (1.8mtpa)

Source: Company Source: Company

Exhibit 17: Solar plant at its unit in Beawar, Rajasthan Exhibit 18: New Atagarh plant, Odisha (3mtpa)

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 76
01 September 2021 Shree Cement
Exhibit 19: Product Portfolio

Source: Industry, Systematix Institutional Research

Exhibit 20: Management team details

Name Designation Background Other board memberships
Is a driving force of the technical excellence achieved by the company. He
Managing is a Chemical Engineer from IIT, Mumbai; was awarded the prestigious EY
Shri H.M. Bangur NIL
Director Entrepreneur of the Year 2016 and the Forbes India Leadership Award,
2017.
Joined in 2004 and since then has been involved in all strategic, policy and 1. Khemka Properties Pvt.
Joint Managing
Shri Prashant Bangur operational matters of the company. He graduated from the Indian School Ltd. 2. Ragini Properties
Director
of Business, Hyderabad. [Link].
Was working with the company as President (Works) and supervising
Whole Time
Shri P. N. Chhangani overall cement plant operations of the company. He is a Chemical NIL
Director
graduate with 35+ years of experience in cement and related industries.
Has more than 30 years of experience in the cement industry and has
President, been with the company since 2000. Before joining SRCM, he was with
Shri Diwakar Payal NIL
Marketing Ambuja Cements. He is an alumnus of IIT Kanpur (B. Tech. Mechanical
Engineering) and IIM, Bangalore (PGDM in Marketing).

Chief Finance Has been the CFO since 01 Sept-2014. Before that, he was working as
Shri Subhash Jajoo NIL
Officer General Manager (Finance) in the company.

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 77
01 September 2021 Shree Cement
Exhibit 21: Annual report highlights
Demand Scenario & Operational efficiency
Year Expansion plan Key Risks YoY Growth
Outlook initiatives
 Government schemes like  Clinker capacity expansion of  Sourcing Gypsum from  Soft demand with Volume: 42.3%
AMRUT, Smart City 2.6mtpa at Raipur, Bhutan instead of surplus supply Revenue: 56%
coupled with the Chhattisgarh is expected to be Oman/Iran (high cost).  Unavailability of EBITDA: 78.6%
expectation of pick-up in completed by Mar'18.  Minimised bag bursting water
housing activities (lower PAT: 40%
 3mtpa Kodla plant expected to cases with proper  Higher fuel &
interest rates) & be commissioned by Dec'18. training to contract power costs
incentives provided for workers.
affordable housing
 Won a limestone mining lease
FY17 at Baloda Bazar- Bhatapara,  Secured three coal
indicate a bright outlook
Raipur. linkages with an
for the cement sector.
aggregate quantity of
0.21mtpa for the Raipur,
Chhattisgarh plant. The
supply will continue for 3
years from the date of
signing of the Fuel
Supply Agreement(s).
 Affordable housing &  3mtpa integrated plant at  Modification in cooler  Soft demand with Volume: 9.7%
govt. infra spending Gulbarga, Karnataka is design to enhance kiln surplus supply Revenue: 14.4%
should drive demand expected by 3QFY19. output.  Unavailability of EBITDA: -1.6%
going forward.  To acquire ~92.83% in Union  Replacing the existing limestone
PAT: -16%%
 Improved rural income, Cement Co, UAE having ink-supplier which was  Higher fuel &
FY18 higher rural credit & 4mtpa/3.3mtpa cement/clinker used to print on cement power costs
allocation to agriculture capacity; process to be bags.
are should boost rural completed by Sep'18.  Modification of cooler
demand.  Won a limestone-mining lease plates to increase waste
in Mudhvay, Kutch, Gujarat. heat recovery
generation.
 Government’s continued  Clinker grinding unit of  Commissioned 21MW  Over capacity in Volume: 13%
thrust on affordable 2.5mtpa at Seraikela, wind power plant in the industry Revenue: 19.2%
housing and infrastructure Jharkhand expected by Karnataka.  Unavailability of EBITDA: 12.9%
development projects 1QFY20.  Overhauling the existing limestone
should aid cement PAT: -6%
 Grinding unit with 3mtpa WHRS capacities to  Higher fuel costs
demand growth. capacity at Atagarh, Odisha & generate higher power.
 Outlook for the cement Patas, Pune to be completed  Adopting a mechanised
FY19 sector thus looks positive. by 1HFY20 & 1HFY21, loading system at the Ras
respectively. plant.
 Acquired Raipur Handling and
Infrastructure Private Limited
for Rs 590mn which will
provide dedicated rail
connectivity at Baloda Bazar
plant.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 78
01 September 2021 Shree Cement

 The uncertainty around  Cement grinding units at  Continuous investment  Over capacity in Volume: -3.7%
the pandemic makes it Athagarh, Odisha (3mtpa) & to set up renewable the industry Revenue: 1.6%
difficult to provide a Patas, Maharashtra (3mtpa) energy power plants.  Unavailability of EBITDA: 31.7%
near-term outlook. are expected to be completed  Reuse of low-grade limestone
by 2QFY21. PAT: 24%
FY20  The long-term outlook limestone and quarry  Higher fuel costs
remains positive led by rejects provide cost-
various economic effectiveness.
reforms & persistent
infrastructure spending.
 Expects cement demand  Commissioned 3mtpa clinker  Efficiency improvement  Over capacity in Volume: 7.7%
to have exceeded grinding unit at Cuttack, initiatives, rationalising the industry Revenue: 5.7%
~333mt (reported in Odisha. The 3mtpa clinker routes and lead  Availability of EBITDA: 7.6%
FY20) in FY21, led by a grinding unit at Patas, Pune distances, enhancing limestone and
solid increase in plant has been delayed and is direct dispatches and PAT: 47.2%
other natural
construction activities now expected to commence increasing the use of resources
across rural and urban commercial production by technological tools in
areas as well as elevated September 2021. supply management.
 Fuel cost
spending by the  The company is setting-up up  Continued optimisation
governments towards to 12000 Ton Per Day (TPD) in mining operations
infrastructure projects. brownfield clinkerisation unit and higher in-house
 Expects healthy cement at Baloda Bazar district of production of gypsum.
demand in FY22E led by Chhattisgarh. The project is
FY21
continued investment in likely to be completed in
housing activities 1HFY23E.
(increased WFH culture)
well supported by low
mortgage rates. Focus on
the infrastructure sector
and the housing for all
scheme will be the key
drivers of demand.
Persisting COVID-19
situation is the biggest
deterrent for the revival
in cement demand.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 79
01 September 2021 Shree Cement

Investment Analysis
Proven track record of project management and timely execution
Over the years, SRCM has established a track record of efficient project management
and execution, involving innovative practices with the help of an in-house project
management team. The company executes its projects in a ‘modular’ manner with
identified equipment suppliers and similar civil structures, which leads to efficient,
coordinated and relatively quicker execution of work. For instance, it undertook a
project to set up a kiln at its Ras, Rajasthan manufacturing facility and subsequently,
replicated the same to set up five additional kilns at the same location.
During the implementation and execution stage, the company typically breaks down
the project into smaller components and engages different contractors for each of
the smaller projects. It has completed the construction and expansion of most of its
manufacturing facilities and grinding units on or before stipulated timelines.
Exhibit 22: Implementation of plants ahead of schedule

Source: Company, Systematix Institutional Research

One of the world’s largest plants at a single location

SRCM has one of the world’s largest clinker capacities at a single location (Ras facility
in Rajasthan). Contrary to the normal practice of setting large-sized kilns of 2-3mtpa
capacity to reap economies of scale, the company installed lower capacity kilns of a
uniform size of 1mtpa one after another. The lower sized kilns were commissioned
faster with a better return on investment, which helped the company finance its
expansion projects through internal accruals. It commissioned its first integrated
plant at Ras, Rajasthan in 2006 and completed five kilns at the same location till
2010. In 2013 and 2014, the company commissioned two more kilns at the same
location.
On completion of a project, the same team was deployed for the next project, which
significantly reduced the execution time of the next project. It also has the same
equipment supplier for most of its expansion projects except for Unit I at Beawar,
Rajasthan and the on-going 3rd kiln at Baloda Bazar, Chhattisgarh.
In 2010, it set up a world record of commissioning a cement kiln in 330 days (Unit VIII
kiln at Ras, Rajasthan). After commissioning six identical kilns of 1mtpa each, the
company increased the kiln size to 2mtpa for the next two kilns at Ras (Unit IX and X)
and subsequently higher capacity kilns for expansion projects in the Eastern and
Southern regions.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 80
01 September 2021 Shree Cement
Strategy of Ras, Rajasthan replicated at Baloda Bazar, Chhattisgarh
SRCM is replicating the strategy it adopted in Ras, Rajasthan of commissioning kilns
at one location in Baloda Bazar, Chhattisgarh. It commissioned its first integrated
plant at Baloda Bazar in 2015 and a 2nd kiln at the same location in 2017. Clinker
capacities of both these kilns were 2.6mtpa each. We believe that the capacities of
these kilns will be increased further through brownfield expansions (internal
modifications and installation of additional pre-heater in each unit). The company is
now commissioning a 3rd kiln of 12,000tpd (3.96mtpa) at this location. This project is
expected to get completed by 1HFY23.
One of the lowest capital costs for capacity expansions
Its in-house project management team, the strategy of appointing different
contractors for each of the smaller projects, modification of plants post-
commissioning and replication of similar-sized kilns at the same location has helped
SRCM remain cost-competitive in its expansion plans. Its capex/ton was the lowest
for FY11-FY20, even though it increased capacities through the greenfield route in
this period (clinker plants at Baloda Bazar, Chhattisgarh and Kodla Karnataka).
Exhibit 23: SRCM’s capital cost for plant commissioning is the lowest amongst its peers
16,000 70.0
14,000 60.0
12,000 50.0
10,000
(Rs/ton)

40.0

(mt)
8,000
30.0
6,000
4,000 20.0
2,000 10.0
- -
UltraTech

Birla Corp
ACC

JK Lakshmi

Orient
Ramco
Ambuja

JK Cement

India Cements
Shree

Capex/ton (Rs) Capacity increase (FY11-20)

Source: Company, Systematix Institutional Research

Consistent in capacity additions historically

SRCM has been consistent in capacity expansions (primarily done through the
organic route). Between FY06-FY21, the company’s installed capacities have grown at
a CAGR of 19.3%, much higher than the industry’s growth rate. Its grinding capacity
has increased to 43.4mtpa vs. just 2.6mtpa in FY05. To date, it has done only one
acquisition of a grinding unit of JP Associates in Panipat, Haryana (installed capacity
of 1.5mtpa).
SRCM has been operating its clinker plants at a utilisation rate of 75-76% for the last
three years (71% in FY20 due to volume loss in Mar’20 after the national lockdown).
While its grinding capacity utilisation has declined to 64% in FY21 due to the addition
of higher grinding capacity vs. clinker capacity, we expect it to increase to 76% in
FY24E.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 81
01 September 2021 Shree Cement
Exhibit 24: Cement capacity utilisation should improve in FY23/24E

50 105.2 120
45
90.9 100
40
80.4 76.0
35 69.3 69.0 80
66.7 63.6 66.2 64.2 63.0
30 59.7
55.1

(mt)

(%)
25 60
20
15 40
10 20
5
0 0

FY12

FY14
FY13

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
Installed capacities CU (%)
Source: Company, Systematix Institutional Research

Exhibit 25: Consistent in capacity expansions

43.4
50 60

40.4
37.9
45
50

34.9
40

29.3
35 40

25.6
23.6
30 30
(mtpa)

(%)
25
17.5
20
13.5
13.5
13.5
20
12.0

15
9.1

10
6.0
4.5

10
3.2

0
5
0 -10
FY10

FY17
FY06
FY07
FY08
FY09

FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
Installed capacities (Domestic markets) YoY growth
Source: Company, Systematix Institutional Research

Capacity expansions aided geographical diversification

SRCM had a presence only in the Northern region till FY13. It started diversifying into
other regions and commissioned its grinding unit of 2mtpa at Aurangabad, Bihar in
FY14 and subsequently, its first integrated plant (clinker and cement capacities of
2.6mtpa each) in Baloda Bazar, Chhattisgarh. It commissioned its first grinding unit in
the Central region (Bulandshahr, Uttar Pradesh) in FY16 and grinding units at two
other locations in the Eastern region (Saraikela, Jharkhand in FY19 and Athagarh,
Odisha in FY21). In FY18, it commissioned its integrated plant in the Southern region
(Kodla, Karnataka with a clinker/cement capacity of 2.4mtpa/3mtpa).

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 82
01 September 2021 Shree Cement
Exhibit 26: India capacity region-wise break-up
100 - - - -
11.4 7.8 7.9 6.5
90 19.5 - 5.2 4.3
- 6.5
80 18.0
22.7
70 30.4
60

(%)
50 100.0
88.6
40 80.5 74.2
30 64.1
52.4
20
10
0
FY13 FY14 FY15 FY16 FY19 FY22E
North East West Central South
Source: Company, Systematix Institutional Research

A market leader in the North; established player in the East

SRCM has remained the market leader in the North and generates almost 65% of its
sales volumes from this region. It is also the fourth-largest player in the Eastern
region (Nuvoco Vistas capacities in the East increased 2x post the acquisition of
Emami Cement in FY21).
th
Exhibit 27: Enjoys leadership position in the North Exhibit 28: 4 largest player in the East
90 80
6 0.0
80 7 7 7 0.0 0.0 5.4 9.2
6 6 70 6.7 8.1 3.0 13.1
70 24 8.6 9.9 11.4
21 23 23 23 60
60 19 18.1 16.4 16.7
8 50 15.1 16.1 14.2
50 8 8 7 9 9
(%)

8 8 8 8 11.8 10.7
(%)

40 8 8 40 9.8 9.7 8.5 16.4

11 11 10 10
30 11 11 30 11.6 10.5 8.4
9.7 9.6 7.6
20 14 14 18 17
22 22 20 15.2 14.0 16.8
16.8 13.8 15.1
10 6 6 6 6
0 6 6 6 6 6- 6- 10
12.0
9.0 11.0 10.8 9.5 8.6
FY16 FY17 FY18 FY19 FY20 FY21 0
ACC Binani UltraTech Ambuja FY16 FY17 FY18 FY19 FY20 FY21
JK Lakshmi JK Cement Shree Cement Wonder Cement ACC UltraTech Ambuja Nuvoco Vistas Dalmia Shree Emami

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Expanded footprint in the UAE with the acquisition of Union Cement Company
SRCM expanded its presence in the global markets in July’18 by acquiring Union
Cement Company (UCC) in Ras Al Khaimah, UAE. At the time of acquisition, UCC had
a clinker/cement capacity of 3.3mtpa/4mtpa and a waste heat recovery system
(WHRS) of 13MW (expanded to 29.5MW in FY21). The company acquired a 97.61%
equity stake in UCC at an EV of USD 305.24mn. UCC has one of the largest integrated
cement plants in the UAE which is located within 1km of Saqr Port in Ras Al Khaimah,
giving access to key export destinations like GCC countries, Africa and South Asia.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 83
01 September 2021 Shree Cement
Exhibit 29: Strategically located plant in the UAE

Source: Company, Systematix Institutional Research

Aims to double capacities over the next 6-7 years

SRCM is expanding its grinding capacity in the Western region (3mtpa capacity in
Patas, Maharashtra is expected to get commissioned by Sep-21). The clinker
requirements for this plant will be met through its Karnataka plant. It is also
expanding clinker capacities at Baloda Bazar, Chhattisgarh, which will strengthen its
position in the Eastern region. This clinker expansion will help meet the additional
requirements of its Jharkhand and Odisha grinding units.
The management expects to double the capacity in the next 6-7 years (this plan was
to be executed in two phases and the company had raised Rs 24bn) through the
issue of equity shares (first-ever equity dilution, 12.435mn shares were issued at Rs
19,300/share through a QIP) in Nov-19. While the plan was delayed due to COVID-
19-led challenges, we believe that the company will begin execution in the near
term.
Though the company has not given any indication on the location of its future
expansions, it has limestone mines (apart from operative mines) in Rajasthan,
Andhra Pradesh and Gujarat. It may opt to expand capacities in the Northern region
(Nawalgarh, Rajasthan) first, followed by other locations in the Southern/Western
regions.
Exhibit 30: Future capacities may be planned across regions (ex-Central region)
14
12.0
12
10.5
10 9.0
8.3 8.0
8
6.5
(mt)

4 3.5
2.5
2

0
North West East South
Clinker Cement
Source: Industry, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 84
01 September 2021 Shree Cement

Focus on cost efficiencies and improving productivity

SRCM is the lowest-cost cement producer in India. It maintains cost-efficiency
through a) higher power generation through WHRS, b) higher dependence on split
grinding units, c) higher clinker to cement conversion ratio, d) lower electricity
consumption, e) multi-fuel usage strategy for kilns and f) usage of synthetic gypsum
generated through captive sources.
Exhibit 31: Lowest variable cost of production amongst peers Exhibit 32: Cement production cost is lowest amongst peers

2,500 4,500 4,077 4,077

3,844 3,730 3,851
1,922 2,006 4,000 3,593 3,626 3,739
2,000 1,818 1,868 1,835 3,406
1,719 1,668 3,500 3,118
1,502 3,000
1,500 1,381
(Rs/ton)

(Rs/ton)
2,500
1,084
1,000 2,000
1,500
500 1,000
500
0 0

ACC

JKCE

SRCM

ICEM

JKLC

Dalmia
BCORP

TRCL
UTCEM

ACEM
ICEM
ACC

JKCE

SRCM

JKLC

Dalmia
UTCEM

BCORP

TRCL

ACEM

FY21 FY21

Source: Company, Systematix Institutional Research; Source: Company, Systematix Institutional Research;
*we believe inter-unit clinker transfer cost for JKLC is included in RM costs *UTCEM and JKCE’s grey cement production cost is based on our assumptions

High dependence on WHRS lowers the variable cost of production

SRCM has been the leader in installing WHRS capacities in India. It commissioned its
first WHRS plant in 2008 in Beawar, Rajasthan and increased its WHRS capacities to
46MW (22% of power generation capacity) in FY10. The capacity was further
increased by 4.6x to 211MW between FY10-21. It also has a wind power capacity of
29MW (Kustagi, Karnataka) and a solar power capacity of 2MW (Panipat, Haryana
and Uttarakhand). Green energy contributed to 48% of its power requirements in
FY21. The cost of power generation through WHRS is less than Rs 1/unit. Based on
our calculations, SRCM should generate 39-40kwh power for every ton of clinker
produced, which would be one of the highest in the industry.
Exhibit 33: 33% of its domestic power capacity is WHRS/Solar/Wind Exhibit 34: Green energy contributes to 40%+ of SRCM’s power
requirements
800 100
33 90
700
21 80 36 36 36 37 41
600 211 45 48
96 126 70
500 60
(MW)

(%)

400 50
40
300 64 64 64 63
501 499 508 30 59 55 52
200 46 20
100 10
164
0
0 36
FY15 FY16 FY17 FY18 FY19 FY20 FY21
FY05 FY10 FY15 FY19 FY21
CPP WHRS Wind+Solar Conventional Energy Green Energy

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 85
01 September 2021 Shree Cement
Reduction in electricity consumption and kiln heat rate
There has been a continuous reduction in power consumption from 79.26kwh/ton of
cement in FY11 to 70.54kwh/ton in FY20. Along with the lower electricity
consumption, its kiln heat rate has declined by 13.5% by FY11-20. This helps in
lowering the requirements of coal/pet coke.
Exhibit 35: Power consumption declined in the last few years Exhibit 36: Kiln heat rate is also on a declining trend
82 860
80 79.3 834
78.2 840
78 76.9 820
(kwh/ton of cement)

75.2 794 796

(kcal/ton of clinker)
76 800
73.8 775
74 72.1 780
757
72 70.5 760
70.0
70 68.7 69.1 68.7 740 728 727
719 718 719 721
68 720
66 700
64 680
62 660
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Power consumption Kiln Heat Rate

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 37: Higher usage of green power & lower electricity/coal consumption led to a
decline in carbon emissions
700 654
606 585 588
600 576 554
552 549 547 543
(kg/ton of cement)

500

400

300

200

100

0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

CO2 emissions

Source: Company, Systematix Institutional Research

High dependence on split grinding units helps to control freight costs

SRCM has a high dependence on split grinding units which helps in controlling freight
costs. About 60% of its capacities in the North (including the grinding unit at
Bulandshahr that gets clinker from Rajasthan plants) consist of split grinding units.
This is significantly higher than UTCEM, wherein split grinding units constitute ~37%
of its capacity in the North. In the East, about 79% of SRCM’s installed capacity
consists of split grinding units. In the South, 50% of its installed capacity is comprised
of split grinding units post the commissioning of the Patas, Maharashtra grinding
unit.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 86
01 September 2021 Shree Cement
Exhibit 38: High dependence on split grinding units… Exhibit 39: …helps to control freight costs
90
79 1,600
80 1,344
1,400 1,314 1,260
70 63 1,184 1,191 1,146
60 59 1,200 1,119 1,132
57 1,008
60
1,000 893

(Rs/ton)
50
(%)

40 39 800
40 37 35
600
30 23
400
20
200
10
0 0
0

ACC

SRCM

JKLC

Dalmia
BCORP
JKCE

ICEM
TRCL
UTCEM

ACEM
Shree UTCEM ACEM ACC JKLC JKCE
North East FY21

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Usage of synthetic gypsum through captive sources

In 2009, SRCM became the first cement company in India to start the production of
synthetic gypsum through a patented process (valid for 20 years from 6th March
2009) which replaced the use of natural gypsum in cement manufacturing. This plant
uses FGD technology (Flue Gas DeSulphurization – low-grade limestone is burnt with
pet coke). In FY20, 69% of SRCM’s gypsum requirement was met through captive
sources.
Exhibit 40: Usage of synthetic gypsum increased significantly
100 0 0 0 0 0 0 2 4 8 10 13
90 15
24
80 34 38 40
53
70
63 63
60 67 63
69
(%)

50
40 85
76
30 66 62 60
47
20
34 32
24 27
10 18
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Gypsum Procurement Synthetic Gypsum Production Chemical Gyspusm

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 87
01 September 2021 Shree Cement
Exhibit 41: Higher clinker to cement conversion ratio even for its Northern plant
2
1.60
2
1.54 1.55
2 1.52
1.50
2 1.47 1.48

(x)
1.45 1.45 1.44
1 1.43

1
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Clinker: Cement conversion (x)

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 88
01 September 2021 Shree Cement

Financial Highlights
We expect SRCM’s sales volume to grow at a CAGR of 10.8% over FY21-24E. This
along with a 1.7% CAGR in realisations over the next three years will aid a revenue
CAGR of 12.4% between FY21-24E. The company launched its premium products
Bangur Power & Roofon in FY19. These products were well-received and captured 5%
of the company’s total sales volume by FY20. The sales volume of Bangur Power
increased 72% YoY in FY21 despite COVID-19-led disruptions. Roofon had a sales
volume of ~1mt in FY21. SRCM expects premium products to account for 10% of its
sales volumes in the near-term.
Exhibit 42: Expect revenue CAGR of 12.4% over FY21-24E… Exhibit 43: …led by volume/NSR CAGR of 10.8%/1.7%
200 25
16
180 13.0 12.7
14
160 20 12 9.7 9.5 9.5 10.1
140 10 8.3
120 15 8 5.5
(Rs bn)

(%)
100 6

(%)
80 10 4 1.9 2.0 2.0
1.0
2 0.2
60
0
40 5
-2 (3.7)
20 -4
0 0 -6
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Net sales YoY growth (%) Sales volume growth Realisation growth

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

SRCM’s operating profit is expected to grow at a CAGR of 10.6% between FY21-FY24E

led by 1) higher sales volumes, 2) higher share of premium products and 3) better
realisations. Its OPM increased to 30.9%/31.4% in FY20/21 from 23.8% in FY19 led by
the steep improvement in realisations (9.5% YoY in FY20) and control on variable
costs in FY21. We expect its OPM to reduce to 29% in FY22E due to higher energy
costs and an increase in variable costs (travelling and office expenses) but improve to
29.4%/29.9% in FY23/24E.
The company’s adjusted profits declined by 15.8% YoY in FY18 on higher tax rates
(ETR at 25% vs. 11% in FY17) and by 5.6% YoY in FY19 (on higher depreciation
expense as SRCM follows the accelerated depreciation policy). However, its adjusted
profit grew at a CAGR of 35% over FY19-21 on better operating performance. We
expect its adjusted profit to grow at a CAGR of 9.7% over FY21-24E. Depreciation is
likely to increase at a CAGR of 14.6% over FY21-24E post the commissioning of its
grinding units in Odisha/Pune and the increase in its clinker capacity in Chhattisgarh.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 89
01 September 2021 Shree Cement
Exhibit 44: Estimate EBITDA CAGR of 10.6% between FY21-24E Exhibit 45: Higher depreciation expense to impact profit growth

60 34 35 60
31.4 47.2
30.9 32 30 50
50
29.9
29.0 29.4 40
30 25
40
23.9 30
28 20

(Rs bn)
(Rs bn)

(%)
(%)
30 12.4 12.2 20
25.1 26 15
4.6 10
20 23.8
24 10 (5.6)
(15.8) 0
10 5

13.4

12.7

15.7

23.1

24.2

27.2

30.5
22 -10
24.7

27.9

36.7

39.5

42.4

47.8

53.5
0 20 0 -20
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) Adj. PAT YoY growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Better operating performance in the last two years has led to EBITDA/ton
improvement - the company recorded its highest EBITDA/ton post FY10 in two
consecutive years. We expect its EBITDA/ton to grow at a CAGR of 1% over FY21-24E
on the high base of FY20/21.
Exhibit 46: EBITDA/ton improved in FY20/21; expect further improvement

1366

1401
1349
1337
1321

1299
1,500 80

60

1052
1037
1036
1033

1,200

936
40

883
838
732

900
(Rs/ton)

20
618

(%)
600 0

-20
300
-40

0 -60
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
EBITDA/ton YoY change (%) (RHS)

Source: Company, Systematix Institutional Research

The improvement in profitability and the release of working capital (cumulative

reduction of Rs 14.4bn in FY20/21) led to an improvement in operating cash flows
(OCF) and free cash flows (FCF) over the last few years. OCF and FCF increased at a
CAGR of 16.8% and 35.4% between FY17-21. Higher FCF generation in FY20/21 was
also led by lower capex (Rs 12.9bn/Rs 9.9bn in FY20/21 vs. its average of Rs 18.9bn
between FY17-19).
Given its strong top-line growth and continued focus on controlling opex, we expect
SRCM to generate a robust OCF of Rs 111.7bn over FY21-24E. Higher OCF will help it
to fund its capacity expansions through internal accruals and keep its balance sheet
healthy. We expect FCF of Rs 56.4bn over FY21-24E (depending on future capex plans
as the management has indicated its aim to double capacity over the next 6-7 years).

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 90
01 September 2021 Shree Cement
Exhibit 47: Healthy OCF and FCF generation to continue till FY24E
50 35
40 30
30 25
20
20

(Rs bn)
15
10
10
0

(Rs bn)
5
-10 0
-20 -5
-30 -10

FY22E
FY23E
FY24E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
CFO Capex FCF (RHS)
Source: Company, Systematix Institutional Research

Despite the capacity increase by 4.8x between FY09-21, SRCM has remained a net
cash positive company in most years, led by lower capital cost for capacity additions
vs. its peers. The company had also raised Rs 24bn through the issue of equity shares
(first-ever equity dilution, 12.435mn shares were issued at Rs 19,300/share through
a QIP) in Nov-19. We expect its net cash to improve to Rs 122bn in FY24E vs. Rs 65bn
in FY21.
Exhibit 48: Remained a net cash positive company in most years
140 0.3

120 0.2

100 0.1
0.0
80
(Rs bn)

-0.1

(x)
60
-0.2
40
-0.3
20 -0.4
0 -0.5
FY19
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

FY20
FY21
FY22
FY23
FY24
-20 -0.6

Net cash Net D/E (RHS)

Source: Company, Systematix Institutional Research

SRCM’s RoE improved to 16.4% in FY21 vs. 13.9% in FY20 led by 1) the improvement
in profitability as cement prices increased in the Northern and Central markets, 2)
controlled opex led by higher power generation through WHRS/wind power plants
and 3) lower variable costs. We expect its RoE to be in the 14-15% range till FY24E.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 91
01 September 2021 Shree Cement
Exhibit 49: Du-pont analysis
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 75.2% 90.7% 80.1% 76.4% 75.0% 75.0% 75.0%
PBT/EBIT 93.0% 85.0% 87.2% 92.4% 93.1% 94.1% 94.9%
EBIT/Sales 19.5% 14.0% 18.9% 26.0% 23.7% 23.7% 24.0%
Asset turnover (x) 0.97 0.99 0.88 0.79 0.82 0.81 0.80
Assets/Equity (x) 1.22 1.27 1.20 1.13 1.09 1.08 1.07
ROE (%) 16.2 13.7 13.9 16.4 14.8 14.7 14.5
Source: Company, Systematix Institutional Research

The RoCE of the company improved to 20.5% in FY21 vs. 16.6% in FY20, led by higher
operating profit and a decline in depreciation costs (Rs 11.4bn in FY21 vs. Rs 17bn in
FY20). We expect its RoCE to be in the 19-20% range till FY24E.
SRCM’s RoIC is amongst the best in the industry due to the redeployment of its
operating cash flows for capacity expansions at the lowest capital cost in the
industry. The faster execution of projects and lower operating costs lead to a smaller
payback period and higher RoIC which improved to 37.8% in FY21 vs. 24.7% in FY20.
We expect it to further improve to 41.8% by FY24E.
Exhibit 50: RoE/RoCE to remain stable, RoIC to improve
45 41.8
39.6 40.0
40 36.4 37.8

35
30
24.7
25 21.7 20.5 19.6
(%)

19.0 19.3 19.1

20 16.6
14.0
15
16.2 16.4
10 13.7 13.9 14.8 14.7 14.5
5
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
RoE RoCE RoIC

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 92
01 September 2021 Shree Cement

Cash flow analysis & corporate governance

FCF generation: Generated cumulative FCF of ~Rs 60bn between FY17-21.
FCF utilisation: Of the total FCF generation of Rs 60bn, SRCM paid ~25% of the
amount (~Rs 15bn) towards dividends (including dividend tax) in the past 5 years.
Liquid assets of the company have increased by Rs79.3bn in last 5 years (132% of
FCF). The company also raised Rs24bn through QIP. Gross debt has increased by
Rs8.9bn in last 5 years (15% of FCF).
FCF expectation: We estimate FCF to dip to Rs 17.2bn/Rs 17.3bn/Rs 21.8bn in
FY22E/23E/24E from Rs 31bn in FY21 as we assume an increase in working capital
and higher capex (average of Rs 18.4bn over the next three years vs. its average of Rs
11.4bn in FY20/21).
Earnings quality: During the last 10 years, the company has earned a cumulative PAT
of ~Rs 122bn against which it generated an OCF of Rs 213bn (1.75x of profits).
Exhibit 51: FCF to decline on higher capex and working capital Exhibit 52: Profit and OCF trends in different phases

35 4 250.0 1.95
213.2
30 3 1.90
200.0
25 3 1.85
20 2 150.0 139.9
121.9 1.80
(Rs bn)

15 2 99.0
(%)

100.0 1.75
10 1 80.9
51.5 1.70
5 1
50.0
1.65
0 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E - 1.60
-5 -1
3Yrs 5Yrs 10Yrs
-10 -1 Cumulative PAT Cumulative OCF
FCF FCF yield (%) (RHS)
Cumulative OCF as % of PAT- RHS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 53: Contingent liabilities

Contingent liabilities (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21
Demand from Competition Commission of India 3,975 4,160 4,160 4,160 4,160 4,160
Incentive - 3,554 3,554 3,554 3,554 3,554
Others 598 807 621 645 669 694
Total 4,573 8,520 8,334 8,359 8,383 8,408
% of networth 7% 11% 9% 9% 6% 6%
Source: Company, Systematix Institutional Research

Exhibit 54: Director and KMPs renumeration & pledging details

Other key monitorables FY16 FY17 FY18 FY19 FY20 FY21
Remuneration to Directors & KMPs (Rs mn) 369 555 643 744 697 794
% of PBT 3.1% 3.1% 3.6% 5.3% 3.6% 2.6%
Auditor's remuneration (Rs mn) 5.9 6.4 5.8 5.8 8.6 6.2
% of PBT 0.20% 0.10% 0.10% 0.10% 0.10% 0.02%
Pledged shares (%) - - - - - -
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 93
01 September 2021 Shree Cement

Systematix vs. Consensus

Our revenue/operating margins estimates are 3-6/6-9% below the Bloomberg
consensus for FY22E, FY23E and FY24E. We expect SRCM’s operating profit to grow
at a CAGR of 10.6% during FY21-FY24E led by 1) higher share of premium products
going forward, 2) increased use of alternate raw materials/waste resources, 3) higher
consumption of renewable sources of energy and continued thrust on installing
WHRS (has the largest portfolio of renewable assets in India at 244MW amongst
cement players) and 4) commissioning of new satellite grinding units in the East
(Atagarh, Odisha) & West (Patas, Maharashtra) India.
Exhibit 55: Shree Cement - Standalone vs. Bloomberg Consensus
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 151 171 191
Systematix est. 146 162 179
% Difference -3% -5% -6%
EBITDA (Rs bn)
Consensus 45 52 59
Systematix est. 42 48 54
% Difference -6% -8% -9%
EBITDA Margin (%)
Consensus 29.9% 30.4% 30.9%
Systematix est. 29.0% 29.4% 29.9%
Difference (bps) (82) (95) (95)
Source: Bloomberg, Systematix Institutional Research

Exhibit 56: Key assumptions

Particulars FY19 FY20 FY21 FY22E FY23E FY24E
Sales volume (mt) 24.9 23.9 25.9 29.2 32.0 35.3
Cement Realization (Rs/ton) 4,139 4,534 4,544 4,589 4,681 4,775
Per ton costs (Rs)
Raw material 334 308 326 314 313 314
Purchase of goods - - - - - -
Employee cost 262 293 283 270 261 256
Power & Fuel 820 756 658 773 784 812
Freight 1,108 1,046 1,132 1,160 1,190 1,220
Other expense 703 723 718 718 732 749
Total Cost 3,227 3,126 3,118 3,235 3,280 3,351
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 94
01 September 2021 Shree Cement

Key Risks
1) Margin pressure in East India: SRCM could face margin pressure in East India as
1) commissioning of ~30mtpa capacity (+~28% capacity) over the next three
years would limit the NSR growth in the region. To maintain its pricing power, it
should prioritise its capacity expansion programme of doubling its capacity to
80mtpa by 2030 and commissioning the 12ktpd plant in Chhattisgarh.
2) Lower cement prices in the Southern region: Historically, cement prices have
remained volatile in the Southern region due to lower capacity utilisation of the
existing units. We have assumed a better pricing scenario considering
additional/sustainability of FY21 price hikes. Lower-than-estimated cement
prices would adversely impact our earnings estimate, given SRCM has 7%
capacity exposure in the south market.
3) Inflationary pressures in fuel costs: There has been a sharp increase in the
prices of pet coke, coal and diesel in the last few months. The price of pet coke is
up ~75% over the last year while imported coal price has increased by 30%+.
Current pet coke prices are up 30%-40% vs. the 4QFY21 consumption price.
Though cement companies are trying to control energy costs by changing their
fuel mix (lower usage of pet coke and Australian coal), continued escalation in
coal/pet coke prices could impact our earnings estimate if the industry is unable
to pass on the cost increases to consumers.
4) Prolonged pandemic-related restrictions/lockdowns: We estimate SRCM to
report cement volume growth of 12.7% in FY22E; however, continued localised
lockdowns in the country could act as a downside risk to our estimates. Besides
hurting demand, lockdowns/restrictions impact the mobilisation of labour at
construction sites, thus delaying the process. However, we derive confidence
from the vaccination pace in India and believe economic recovery and normalcy
will be attained from 2HFY22E onwards.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 95
01 September 2021 Shree Cement

Valuation and View

SRCM, the market leader in the Northern region, has diversified into the Eastern and
Southern regions over the last few years. Consistent capacity additions have helped
it gain volumes. Its capital cost/ton for expansions has been one of the lowest in the
industry while it is also one of the most cost-efficient players. Tight control on the
variable cost of production and freight costs has helped it become the lowest-cost
producer in the Indian cement industry.
The company’s capacity increased at a CAGR of 19.2% whereas sales volume grew at
a CAGR of 14.3% between FY05-21. It is expanding its clinker capacities by 12,000 tpd
(3.96mtpa) in Baloda Bazar, Chhattisgarh and grinding capacity by 3mtpa in Patas,
Pune. The management intends to double the capacity in the next 6-7 years - this
plan was to be executed in two phases and the company had raised Rs 24bn through
the issue of equity shares (first-ever equity dilution, 12.435mn shares were issued at
Rs 19,300/share through a QIP) in Nov-19. While the plan has been delayed due to
COVID-19-led challenges, we believe the company will commence the execution of
expansion in the near-term. It is likely to expand its capacity in the Northern region
(Nawalgarh, Rajasthan) first, followed by other locations in the Southern/Western
regions.
Exhibit 57: Capacities and sales volumes have increased significantly

FY05-21
20 19.2

18
16 14.3
14
12
(%)

10
8
6
4
2
0
Capacity CAGR Sales volume CAGR
Source: Company, Systematix Institutional Research

SRCM has been consistent in generating wealth for investors, which we believe is
due to its cost efficiencies, higher RoIC and conservative approach of capacity
additions through internal accruals.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 96
01 September 2021 Shree Cement
Exhibit 58: SRCM has been a consistent wealth multiplier

Source: Company, Systematix Institutional Research

The company believes in keeping its balance sheet de-leveraged. Despite significant
capacity additions in the past, it has remained cash-positive which will help it fund
future expansions. It had net cash of Rs 65.2bn at FY21-end and we expect to
increase to Rs 121.9bn by FY24-end (depending on its expansion plans).
It enjoys one of the best return ratios in the cement sector. The company’s RoIC
improved to 24.7%/37.8% in FY20/FY21 from 21.7% in FY19 and we expect it to
improve further to 41.8% by FY24E.
The stock trades at 22.2x/19.3x/16.8x FY22E/23E/24E EV/EBITDA and USD
277/272/265 FY22E/23E/24E EV/ton. It has traded at an average EV/EBITDA of 20.2x
in the last 7 years. With the improvement in profitability (EBITDA expected to grow
at a CAGR of 10.6% over FY21-24E), stable return ratios, strong balance sheet and
increasing capacity, we expect it to maintain its premium valuation. We value the
stock at 20x FY23E EV/EBITDA to arrive at a target price of Rs 29,855 (an upside of
5.5% from the CMP) and initiate coverage with a HOLD rating. At our TP, the stock
will trade at 20x/17.4x FY23E/24E EV/EBITDA and USD 289/282 FY23E/24E EV/ton.
Exhibit 59: 1- year forward EV/EBITDA Exhibit 60: 1-year forward EV/ton
30
300
24
250
18
(US$/ton)

200
(x)

12
150
6
100
0
50
Aug-11
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1

1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 97
01 September 2021 Shree Cement

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 119,040 125,884 145,884 162,292 178,823 Equity share capital 361 361 361 361 361
Growth (%) 1.6 5.7 15.9 11.2 10.2 Reserves & surplus 129,003 152,140 173,285 196,991 223,574
Total Expenditure 82,555 86,337 103,530 114,535 125,306 Net worth 129,364 152,501 173,645 197,352 223,934
EBIDTA 36,745 39,547 42,354 47,758 53,516 Loan Funds 31,442 21,832 21,832 21,832 21,832
Growth (%) 31.7 7.6 7.1 12.8 12.1 Net Deferred Taxes 7,438 7,855 7,855 7,855 7,855
EBIDTA % 30.9 31.4 29.0 29.4 29.9 Total Liabilities 153,368 166,478 187,623 211,329 237,912
Depreciation 16,994 11,399 12,979 15,076 17,173
EBIT 19,751.1 28,148.2 29,375.1 32,681.7 36,342.9 Net block 43,189 41,916 48,937 53,861 56,687
EBIT margin (%) 16.6 22.4 20.1 20.1 20.3 Capital WIP 9,621 9,710 5,000 5,000 5,000
Other income 2,716 4,580 5,250 5,844 6,507 Investment 89,154 110,506 124,506 142,506 160,506
Interest 2,865 2,471 2,372 2,277 2,186 Current Assets 43,976 40,402 45,664 47,534 54,502
EBT 19,602 30,257 32,253 36,248 40,663 Inventories 14,279 14,772 15,636 16,464 17,289
Tax 3,900 7,138 8,063 9,062 10,166 Sundry Debtors 8,285 4,859 5,212 5,910 6,542
Effective tax rate (%) 19.9 23.6 25.0 25.0 25.0 Cash and Bank 1,082 2,098 5,173 4,542 8,786
Adj PAT 15,702 23,119 24,190 27,186 30,497 Loans and Advances 5,476 6,232 6,701 7,177 7,944
Growth (%) 23.9 47.2 4.6 12.4 12.2 Other current assets 14856.1 12441.2 12941.2 13441.2 13941.2
Net Margin (%) 13.2 18.4 16.6 16.8 17.1 Current Liab & Prov 32,573 36,055 36,484 37,572 38,784
Reported PAT 15,702 23,119 24,190 27,186 30,497 Net current assets 11,404 4,347 9,180 9,962 15,718
Growth (%) 65.1 47.2 4.6 12.4 12.2 Miscellaneous Exps 0 0 0 0 0
Source: Company, Systematix Institutional Research Total Assets 153,368 166,478 187,623 211,329 237,912
Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PBT (Ex-Other income) 19,602 30,257 27,003 30,404 34,157 Profitability (%)
Depreciation 16,994 11,399 12,979 15,076 17,173 EBITDA Margin 30.9 31.4 29.0 29.4 29.9
Interest Provided 1,132 2,471 2,372 2,277 2,186 Net Margin 13.2 18.4 16.6 16.8 17.1
Other Non-Cash items (946) (4,515) - - - ROCE 16.6 20.5 19.6 19.3 19.1
Chg in working cap 5,591 8,762 (1,757) (1,414) (1,512) ROE 13.9 16.4 14.8 14.7 14.5
Tax paid (4,859) (7,439) (8,063) (9,062) (10,166) RoIC 24.7 37.8 39.6 40.0 41.8
Operating Cashflow 37,514 40,936 32,533 37,282 41,839 Per Share Data (Rs)
Capital expenditure (12,941) (9,924) (15,290) (20,000) (20,000) EPS 435.2 640.8 670.4 753.5 845.3
Free Cash Flow 24,573 31,012 17,243 17,282 21,839 CEPS 906.2 956.7 1,030.1 1,171.3 1,321.2
Other income 1,906 2,107 5,250 5,844 6,507 BVPS 3,585.4 4,226.7 4,812.7 5,469.7 6,206.5
Investments (42,698) (20,863) (14,000) (18,000) (18,000) DPS 110.0 60.0 70.0 80.0 90.0
Investing Cashflow (40,792) (18,755) (8,750) (12,156) (11,493) Valuations (x)
Equity Capital Raised 23,833 - - - - PER 65.0 44.2 42.2 37.6 33.5
Loans Taken / (Repaid) 1,175 (9,610) - - - P/CEPS 31.2 29.6 27.5 24.2 21.4
Interest Paid (2,868) (2,514) (2,372) (2,277) (2,186) P/BV 7.9 6.7 5.9 5.2 4.6
Dividend paid (incl tax) (6,231) (22) (3,045) (3,480) (3,915) EV / Sales 8.3 7.6 6.4 5.7 5.0
Income from investments - - - - - EV / EBITDA 26.9 24.2 22.2 19.3 16.8
Others - - - - - Dividend Yield (%) 0.4 0.2 0.2 0.3 0.3
Financing Cashflow 15,910 (12,146) (5,417) (5,757) (6,101) Gearing Ratio (x)
Net chg in cash (309) 112 3,076 (632) 4,244 Net Debt/ Equity -0.3 -0.4 -0.5 -0.5 -0.5
Opening cash position 152 (157) 2,098 5,173 4,542 Net Debt/EBIDTA 0.8 0.5 0.4 0.4 0.2
Closing cash position (157) (46) 5,173 4,542 8,786 Working Cap Cycle (days) -14 -30 -24 -19 -15
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 98
 Systematix
Institutional Equities

Ambuja Cement 01 September 2021

Gearing up for the upcycle!

INITIATING COVERAGE Historically, Ambuja Cement (ACEM) has lagged behind its peers in capacity
Sector: Cement Rating: BUY additions. Between FY10-21, ACEM’s capacity grew at a CAGR of 4.9% whereas
most of its peers witnessed capacity growth of 10-17%. This led to lower-than-
CMP: Rs 421 Target Price: Rs 500
industry volume growth for the company while its sales volume remained stagnant
Stock Info between CY11-16. Post CY16, the effort to push volumes resulted in a sales volume
Sensex/Nifty 57,552/17,132 CAGR of 4.3% between CY16-19. The management targets to reach 50mtpa
Bloomberg ACEM IN capacity in the near term. This plan, if executed, would alleviate investors’
Equity shares (mn) 1,986 concerns about growth. ACEM’s new plant at Marwar Mundwa, Rajasthan along
52-wk High/Low 427/197 with the increase in grinding capacity at Ropar, Punjab will lead to incremental
Face value 2 capacity growth of 4.5mtpa (15% of current capacity) and market share gains of 50-
M-Cap Rs 837bn/USD 11.4bn 60bps. The operating efficiency and cost improvement programs (I CAN and Master
3-m Avg volume USD 21.4 mn Supply Agreement with ACC) are yielding results. The Master Supply Agreement
Financial Snapshot (Rs mn) with ACC led to PBT benefits of 5%+ in CY20. We expect a RoE of 19-21% between
Y/E March CY21E CY22E CY23E CY21-23E vs. 15% in CY20 (up 2.6pp YoY). The stock trades at 15.9x/13.8x/11.7x
Sales 141 156 173 CY21/22/23E EV/EBITDA. We initiate coverage with a BUY rating and value it at 14x
EBITDA 36 40 45 CY23E EV/EBITDA to arrive at a target price of Rs 500.
PAT 25 27 31
New plant in the North to aid volume growth; aims to reach 50mtpa capacity
EPS (Rs) 12.5 13.8 15.8
PE (x) 33.7 30.4 26.7 ACEM’s greenfield plant with clinker/cement capacity of 3.1/1.8mtpa at Marwar
EV/EBITDA (x) 15.9 13.8 11.7 Mundwa, Rajasthan, along with its grinding capacity expansion by 1.5mtpa in Ropar,
RoE (%) 20.8 19.7 19.3 Punjab would lead to incremental capacity growth of 4.5mtpa (~15% of capacity) as
RoCE (%) 35.0 32.1 30.6 the company has surplus grinding capacity. We expect sales volume to grow at a
Dividend yield (%) 0.6 0.7 0.8
CAGR of 12.6% over CY20-23E, leading to market share gains of 50-60bps. ACEM
Shareholding pattern (%) plans to reach 50mtpa capacity in the medium term through brownfield expansions
Jun-21 Mar-21 Dec-20 (Bhatapara, Chhattisgarh and Maratha, Maharashtra plants) and debottlenecking
Promoter 63.3 63.3 63.3 across all plants. It may consider clinker capacity addition of 3.3mtpa each in the
–Pledged - - - Eastern and Western regions.
FII 17.7 17.7 18.1 Operating efficiency and cost-saving measures are yielding results
DII 12.2 12.1 11.5
Others 6.8 6.85 7.1 ACEM entered into a Master Supply Agreement (MSA) with ACC to benefit from each
other’s capacities through clinker/cement/raw material swapping. This led to a PBT
Stock Performance (1-year) improvement of 5%+ in CY20. It plans to improve its cost structure through the
450 commissioning of Waste Heat Recovery Systems (WHRS), solar power plants, coal
400
mining from the Gare-Palma IV coal block and the completion of the railway siding
350
300
project at Rabriyawas, Rajasthan. We expect EBITDA/ton of Rs 1,405 in CY23E vs. Rs
250 1,168/Rs 1,434 in CY20/1HCY21.
200
150
Valuation and recommendation
Nov-20

Jan-21
Aug-20

Sep-20

Dec-20

Feb-21
Mar-21

Apr-21

Jul-21
Oct-20

May-21

Jun-21

Aug-21

We expect an EBITDA CAGR of 19.7% over CY20-23E. ACEM’s RoE improved by 2.6%
Ambuja Sensex
YoY to 15% in CY20 and we estimate it to improve further to between 19-21% by
CY23E. The stock trades at 15.9x/13.8x/11.7x CY21/22/23E EV/EBITDA and USD
Sanjeev Kumar Singh 247/239/229 CY21/22/23E EV/ton. It has traded at an average EV/EBITDA of 13.3x
sanjeevsingh@[Link] over the last 10 years. Going forward, with the improvement in profitability and
+91 22 6704 8017
return ratios, we expect it to trade at its historical valuations and hence value the
Rahul Jain company at 14x CY23E EV/EBITDA to arrive at a target price of Rs 500, an upside of
rahuljain@[Link]
20% from the CMP. We value its subsidiary ACC at 12x CY23E EV/EBITDA. We initiate
+91 22 6704 8066
coverage on the stock with a BUY rating.
Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 99
01 September 2021 Ambuja Cement

Story in charts
Exhibit 1: Lagged its peers in capacity additions… Exhibit 2: …which led to lower volume growth
18 16.9
20
16
14 13.1 12.6 15
12 10.6 10.9 10.5
10
10
(%)

(%)
5
6 4.9
4 2.6 0
2
-5
0
Dalmia Bharat

JK Cement
ACC

JK Lakshmi
UltraTech

Shree Cement

Birla Corp
ACEM

-10

CY12
CY09

CY10

CY11

CY13

CY14

CY15

CY16

CY17

CY18

CY19

CY20
Sales volume growth (%) Industry Volume growth (ex-South)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: Sales volume growth expected to be above industry Exhibit 4: ACEM may plan for brownfield expansion in
average during CY21-23E Chhattisgarh & Maharashtra
20 19.5 9
8.1
18
8
16
7
14 6.2
12 6
9.3 9.2 4.8
(%)

10 8.8 8.5 5
(mt)

8 7.0
4
6 2.9
4 3
2 2
0 1
CY21E CY22E CY23E
0
Sales volume growth (%) Industry Volume growth (ex-South) Chandrapur, Maharashtra Baloda Bazar, Chhattisgarh
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
rd
Exhibit 5: We estimate ~1/3 of power generation through Exhibit 6: WHRS will lead to incremental cost savings of Rs 64/ton
renewable energy by CY24E
35.0 80
31.4
30.0 28.4 70 67

23.9 60
25.0
21.4 49
50
20.0
(Rs/ton)
(%)

15.7 40
15.0 11.9 11.5 30
9.3
10.0 7.4 7.1 7.9 7.9 19
5.5 6.6 20
4.9 5.4
5.0 10 6 7

0.0 0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY24E CY20 CY21E CY22E CY23E CY24E

RE % of power generation RE % of power consumption Savings through WHRS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 100
01 September 2021 Ambuja Cement
Exhibit 7: Goods purchased from ACC increased ~2x in CY20… Exhibit 8: …while goods sold to ACC increased 4.5x YoY in CY20;
4.5% of revenues
2,500 6,000 5.0
2,200 4.5
4.5
2,000 5,000
4.0
3.5
4,000
1,500 3.0

(Rs mn)
(Rs mn)

(%)
1,036 3,000 2.5
1,000 2.0
2,000
1.0 1.5
500 1.0
1,000 0.1
243 0.5
122 1,151 5,170
0 0.0
0
CY18 CY19 CY20
CY18 CY19 CY20
Purchase of goods from ACC Sale of goods to ACC % of reveunes (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: EBITDA/ton improved in CY20; expect it to improve Exhibit 10: Return ratios improved in CY20; RoE/RoCE expected
further to improve further
1,600 30
1,362 1,405
1,334 25.6 25.8 26.2
1,400
1,168 25 23.3
1,200
24.1 24.1 24.7
1,000 896 18.6 18.4
844 20 22.0
776 16.7
(Rs)

800
(%)

17.4 17.6 17.6 18.1

600 15 16.5
15.1 15.7
400 13.1
10 11.7
200 10.6
0 5
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E
EBITDA/ton EBITDA margin EBIT margin Adj. PAT margin

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1- year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
30.0
300
25.0
250
20.0
200
(US$/ton)
(x)

15.0
150
10.0 100
5.0 50
0.0 -
Aug-12

Aug-13
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 101
01 September 2021 Ambuja Cement

Company background
th Ambuja Cements Ltd. (ACEM), a subsidiary of LafargeHolcim (controlling 63.3%
On a standalone basis, ACEM has the 5
stake), is one of the leading cement companies in India with an annual
largest grinding capacity and it is
clinker/cement capacity of 17.7/29.7mtpa and captive power generation capacity of
expected to add 3.1/1.8mtpa
291MW. Barring southern India, the company has a geographical presence across the
clinker/cement capacity by CY21-end and
a 1.5mtpa grinding unit by CY23E.
entire country with ~50,000 channel partners (addition of 600 channel partners in
CY20). ACEM derives 11% revenue share from its premium product portfolio of
Ambuja Plus Roof Special, Cool Walls, Compocem and recently introduced Kawach.
ACEM holds a 50% stake in ACC.
Exhibit 13: Ambuja Cements Infrastructure in India

Source: Company, Systematix Institutional Research

Exhibit 14: ACEM is a major cement player in the markets where it has presence

22%
25%

East
West-South
North
North West
21%

32%

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 102
01 September 2021 Ambuja Cement

Manufacturing facilities
Exhibit 15: Ambujanagar integrated unit (5.5mtpa) Exhibit 16: Bhatapara integrated unit (3.6mtpa)

Source: Company Source: Company

Exhibit 17: Maratha integrated unit (4.5mtpa) Exhibit 18: Rabariyawas integrated unit (2.6mtpa)

Source: Company Source: Company

Exhibit 19: Grinding unit in Ropar, Punjab (2.5mtpa) Exhibit 20: Muldwarka bulk cement terminal

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 103
01 September 2021 Ambuja Cement
Exhibit 21: ACEM’s building products portfolio; KAWACH was the latest addition

Source: Company

Exhibit 22: Board of Directors & Key Managerial Personnel

Name Designation Background Other board memberships
A doyen of the Indian Cement industry, he is the Principal Founder of the company and
the Chairman of the Board of Directors. He was the Chief Executive & Managing
Mr. N.S. Principal 1. ACC Ltd.
Director of the Company from its inception in Apr-83 until Jan-06. He introduced new
Sekhsaria Founder 2. Everest Industries Ltd.
standards in manufacturing, management, marketing efficiency and corporate social
responsibility to the cement industry.
Is also the Chief Executive Officer of Holcim. He is a German national and has studied in
Switzerland and the US, and graduated from the University of Fribourg, Switzerland,
with a Master of Business Administration. He had joined Holcim in 2017 and has been
Mr. Jan Vice leading a new era of transformational growth as well as financial and ESG performance
1. ACC Ltd.
Jenisch Chairman with the vision to become the global leader in innovative and sustainable building
solutions - the most recent milestone in this transformation is the 2021 acquisition of
Firestone Building Products to become the global leader in flat roofing systems
worldwide and the building partner of choice from foundation to rooftop.
Joined the Board in Feb’20 and has over 28 years of experience in the steel and cement
Managing
Mr. Neeraj industries. He has worked in leadership roles in India and other emerging markets. He
Director & 1. ACC Ltd.
Akhoury began his career with Tata Steel in 1993 and joined the LafargeHolcim Group in 1999.
CEO
He was working as Managing Director & CEO of ACC Limited from Feb-17 till Feb-20.
A qualified chartered accountant from ICAI, a Cost Accountant from ICWAI and a
certified public accountant from the American Institute of Certified Public Accountant.
Chief She has over 26 years of experience in accounting, finance, taxation, audit and general
Ms. Rajani 1) Holcim Philippines Inc
Financial management in manufacturing, pharmaceutical as well as auditing and consulting
Kesari 2) Thermax Ltd.
Officer companies. She joined LafarqeHolcim Group in 2018 from Schneider Electric, an energy
management and automation company where she was the CFO for East Asia and Japan
Zone.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 104
01 September 2021 Ambuja Cement
Exhibit 23: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Risks/Concerns YoY Growth
initiatives
 Demand grew in double  Mining lease at Maldi  Enhancing use of fly-  Ensuring raw material
digits in 1QCY16 but Mopar/Loadhva to secure ash in PPC. security. Volume: -1.4%
moderated for the full- limestone requirement at Revenue:-2.8%
CY16
year due to Bhatapara/Ambujanagar EBITDA: 10.5%
demonetisation. plant. PAT: 9.2%

 Industry’s volumes grew  Environmental Clearance  Minimising costs of  Ironing out logistical
6% YoY in CY17 despite a acquired for Maldi Mopar fuel mix & working on bottlenecks. Volume: 7%
challenging market mines with a target to fuel flexibility to Revenue:13.6%
CY17 environment, GST hiccups start operations by mitigate the risks EBITDA: 14.6%
& sand availability issues. June’19. associated with a PAT: 30%
dynamic fuel market.
 Sector displayed  Rs 23.5bn investment for  Sharp focus on  Availability of quality
impressive growth of ~9% 3.1/1.8mtpa network optimisation, raw materials & natural Volume: 6%
in 2018 on the back of the clinker/cement units in change in mode-mix, resources at a Revenue: 8.7%
CY18 execution of stalled Rajasthan. re-negotiation of competitive cost. EBITDA: -2.5%
infrastructure and transportation PAT: -1.3%
construction projects. contracts.
 Demand took a beating  Technologies to comply  Plans to set up WHRS  Aims to capture the lost
due to general elections, with SO2 & NO2 emission at Darlaghat & market share by
labour shortages, norms are in place with Bhatapara for Rs 3.8 installing clinker plants
weakness in the realty an investment of Rs bn; expected to be at Marwar Mundhwa,
sector and prolonged 1.25bn. functional by 2QCY21. Rajasthan; this should
monsoon leading to 2-3% lead to an increase in Volume: -1.6%
 Invested Rs 0.7bn to
demand growth. output by 4.5mtpa. Revenue: 2.7%
CY19 purchase 50ha of land in
EBITDA: 13.6%
 Outlook remains positive Darlaghat, Ambujanagar,  To reduce dependence
PAT: 26.4%
with the government's Bhatapara for limestone on conventional fuel, it
renewed focus on purpose. is installing WHRS and
infrastructure solar power plants.
development and the
housing sector.
 Demand witnessed  Aims to install  Aims to spend Rs  Maintaining market
resurgence led by robust 23.5/39.5MW of solar 5.25bn towards WHRS share in a volatile,
farm income and strong (Gujarat, Chhattisgarh) for enhanced use of uncertain market.
volumes in urban housing /WHRS (HP, Chhattisgarh) green energy and
 Securing key inputs to
(all-time low interest capacity by CY22. optimisation of
remain cost-
rates) in 2HCY20. operating cost. Volume: -5.5%
 Acquired a new ML in competitive and ensure
Revenue:-2.5%
CY20  Completion of pending Nandgaon Ekodi mine to  Total 23.5/39.5MW of sustainable supply.
EBITDA: 23.2%
affordable houses coupled secure limestone supply solar (Gujarat,
PAT: 17.1%
with government for the Maratha plant, Chhattisgarh) /
spending on infrastructure Maharashtra. EC & other WHRS(HP,
could lead to demand clearances are awaited. Chhattisgarh) capacity
growth of 5-6%. to be commissioned till
CY22.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 105
01 September 2021 Ambuja Cement

Investment Analysis
Slower capacity additions than peers...
ACEM has added capacity at a slower pace than most of its peers over the last 10
years. It commissioned two clinker lines of 2.2mtpa each in Bhatapara (Chhattisgarh)
and Rauri (Himachal Pradesh) in 1QCY10 and has not added clinker capacities after
that. Between FY10-21, ACEM’s capacity grew at a CAGR of 4.9% while most of its
peers witnessed 10-17% growth. Apart from the companies mentioned below,
ACEM’s relevant markets saw the emergence of players like Wonder Cement,
Nuvoco Vistas (acquired plants of LafargeHolcim in India and Emami Cements).
Exhibit 24: ACEM lagged its peers in capacity additions…
18 16.9
16
14 13.1 12.6
12 10.6 10.9 10.5
10
(%)

8
6 4.9
4 2.6
2
0

JK Lakshmi
ACC
UltraTech

Shree Cement

Birla Corp
Dalmia Bharat
ACEM

JK Cement
Source: Company, Systematix Institutional Research

…leading to lower volume growth and market share loss

Lower capacity additions restricted ACEM’s volume growth, with its sales volumes
growing at a CAGR of 2.1% between CY08-21 vs. the industry’s (ex-South) demand
growth of 6.1% during that period. The company’s sales volumes remained flat
between CY11-CY16 primarily due to higher capacity additions by its peers. This, in
turn, led to market share loss for the company – we estimate a loss of 3.3pp
between CY10-16. In CY17/18, ACEM recorded a volume growth of 8.8%/6.1%, likely
driven by improved capacity utilisation of the industry (ex-Southern region).
Exhibit 25: …resulting in lower volume growth and… Exhibit 26: …market share loss over the years
20 14.0 13.2 13.0
12.4
11.8
15 12.0 11.1
10.6
9.9 9.8 10.0 9.6
10.0 9.5
10 9.1

8.0
(%)

5
(%)

6.0
0
4.0
-5
2.0
-10
CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18

CY19

CY20

0.0
CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20
Sales volume growth (%) Industry Volume growth (ex-South) Market share (%)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 106
01 September 2021 Ambuja Cement
Exhibit 27: ACEM’s capacity utilisation improved post CY16
90
88
86
84
82

(%)
80
78
76
74
72
70

CY12

CY15

CY18
CY09

CY10

CY11

CY13

CY14

CY16

CY17

CY19

CY20
Capacity utilisation (%) Industry Cap. Util. (Ex-South)

Source: Company, Systematix Institutional Research

Commissioning of Marwar Mundwa, Rajasthan project to aid volume growth

ACEM is expanding its clinker capacity by 3.1mtpa (9,500 tpd kiln) and grinding
capacity by 1.8mtpa by setting up a greenfield plant at Marwar Mundwa, Nagaur,
Rajasthan with a capex outlay of Rs 23.5bn, which has been funded through internal
accruals. This plant is expected to start commercial production in 3QCY21 and would
aid volume growth for the company. ACEM will also increase the grinding capacity by
1.5mtpa at the existing unit at Ropar, Punjab. Overall, the management believes that
the grinding capacity increase would be 4.5mtpa as the group (ACC/ACEM) has
surplus grinding capacity to make use of higher clinker production. The
commissioning of this plant may lead to a market share gain of 50-60bps for the
company (9.7% in CY23E vs. 9.1% in CY20).
Exhibit 28: Marwar Mundwa project will cater to North Exhibit 29: Sales volume growth likely to be above industry
average between CY21-23E
25

20 19.5

15
(%)

10 9.3 9.2
8.8 8.5
7.0

0
CY21E CY22E CY23E
Sales volume growth (%) Industry Volume growth (ex-South)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 107
01 September 2021 Ambuja Cement
Aims to achieve 50mtpa capacity; execution is the key
ACEM’s management hinted at further capacity additions in the East and West
markets at its 2021 Annual General Meeting. The company is evaluating brownfield
expansion opportunities at Bhatapara, Chhattisgarh and Maratha, Maharashtra
plants. It also plans to increase its grinding capacities through debottlenecking across
plants in the next few years. It aims to add 15mtpa grinding capacity in the mid-term,
which would increase its grinding capacity to 50mtpa.
The company may consider clinker capacity addition of 3.3mtpa each in the Eastern
and Western regions in the next few years. However, considering the gap between
planning and execution of the Marwar Mundwa project, execution of the planned
capacities will be a key monitorable.
Exhibit 30: ACEM may plan brownfield expansion in Chhattisgarh & Maharashtra
9
8.1
8

7
6.2
6
4.8
5
(mt)

4
2.9
3

0
Chandrapur, Maharashtra Baloda Bazar, Chhattisgarh
Source: Company, Systematix Institutional Research

Market-mix skewed towards the Northern, Eastern and Western regions

ACEM has a clinker capacity of 17.7mtpa which will get increased to 20.8mtpa by
3QCY21E. Post commissioning of the Marwar Mundwa project, 51% of its clinker
capacity will be in the Northern region whereas 30.8%/18.3% will be in the
Western/Eastern regions. It has a grinding capacity of 29.7mtpa which will get
increased to 31.5mtpa by 3QCY21E. Post the capacity increase, 44.1% of the grinding
capacity will be in the Northern region, 24.6% in the Eastern region, 26.7% in the
Western region and 4.6% in the Central region.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 108
01 September 2021 Ambuja Cement
Exhibit 31: Post the Marwar Mundwa project, 51% of total clinker Exhibit 32: … while ~70% of grinding capacities will be in the
capacity will be based in North India… traditional markets of North and West India

27%
31%

North
West 44%
Central
51% East
East
North
West

18% 25%
4%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Focus on WHRS/solar plants to support cost-savings

ACEM has a Waste Heat Recovery System (WHRS) of only 6.5MW at Rabariyawas,
Rajasthan plant. It plans to commission a WHRS capacity of 54MW at three locations
(Darlaghat, Himachal Pradesh; Bhatapara, Chhattisgarh and Marwar Mundwa,
Rajasthan). Total capex for WHRS has been estimated at Rs 5.25bn (Rs 4bn excluding
Marwar Mundwa as it is a part of Rs 23.5bn capex for the plant). WHRS capacities are
also being planned at Ambujanagar, Gujarat and Maratha, Maharashtra plants.
The company has a renewable power capacity of 34.53MW, which includes a 15MW
biomass-based power plant at Ropar, Punjab, a 7.5MW wind power plant at Kutch,
Gujarat and solar power plants of 5.53MW. It is setting up solar power plants of
11.5MW at Bhatapara, Chhattisgarh and 12MW at Ambujanagar, Gujarat plants. In
CY20, it started sourcing solar power (capacity-14MW) through a PPA at its Dadri,
Uttar Pradesh plant.
Exhibit 33: WHRS capacity to be increased by 54MW Exhibit 34: Solar power caapcity to be increased by 24MW

Plants State MW Plants State MW

Rabariyawas Rajasthan 6.5
Rabariyawas Rajasthan 5.14
Current capacity 6.5
Darlaghat Himachal Pradesh 21.1 Others 0.39
Bhatapara Chhattisgarh 18.3
Current capacity 5.53
Marwar Mundwa Rajasthan 15.0
Planned 54.4 Bhatapara Chhattisgarh 11.5
Maratha Maharashtra 15.0
Ambujanagar Gujarat 12.0
Ambujanagar Gujarat 15.0
Under consideration 30.0 Planned 23.5

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Renewable sources contributed to 12% of total power generation against 7.9% in

2019. We believe that renewable sources will contribute to 33.8% of total electricity
generation and 25.3% of total electricity consumption by CY24E. Higher power
generation through WHRS may lead to incremental cost savings of Rs 45/ton by
CY23E (Rs 65/ton by CY24E), while higher power generation through solar plants may
lead to incremental cost savings of Rs 4-5/ton.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 109
01 September 2021 Ambuja Cement
rd
Exhibit 35: We estimate ~1/3 of power generation through Exhibit 36: WHRS will lead to incremental cost savings of Rs 64/ton
renewable energy by CY24E
35.0
31.4 80
30.0 28.4 70 67
23.9 60
25.0
21.4 49
50
20.0

(Rs/ton)
(%)

15.7 40
15.0 11.9 11.5
30
9.3
10.0 7.4 7.1 7.9 7.9 19
5.5 6.6 20
4.9 5.4
5.0 10 6 7

0.0 0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY24E CY20 CY21E CY22E CY23E CY24E

RE % of power generation RE % of power consumption Savings through WHRS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 37: ACEM plans to reduce CO2 emission levels by 13% from the current levels
700
663
650
(kg/ton of cement)

600 588
554 545 550
543
550 530 531 531

500
463
450

400
CY05 CY10 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY30E
Co2 emissions

Source: Company, Systematix Institutional Research

Other cost-saving strategies include: a) Underground mining from Gare-Palma IV coal

block, Chhattisgarh which is expected to start by 3QCY21 and b) a new railway siding
being constructed at Rabriyawas, Rajasthan plant with a capex of Rs 2.1bn; it is
expected to be commissioned by 3QCY21.
ACEM has also obtained a new limestone mining lease at Maldi Mopar to secure the
long-term limestone requirement of the Bhatapara plant for which environmental
clearance (EC) and other clearances have been received. The capex for this project is
Rs 2bn and is expected to start by 3QCY21.
It has also obtained a mining lease at Lodhva, Gujarat to secure the long-term
limestone requirement for the Ambujanagar plant. It has already received the EC and
other required approvals. The land acquisition process is in progress (Rs 200mn has
been spent). It has also acquired a mining lease at the Nandgaon Ekodi mine,
Maharashtra which will help to meet the requirements of the Chandrapur plant. The
company is trying to get EC and other required approvals for this mine.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 110
01 September 2021 Ambuja Cement
It will incur a capex of Rs 1bn for setting up fly ash dryers/hot air generators at Ropar
and Bhatinda (Punjab), Nalagarh (Himachal Pradesh), Dadri (Uttar Pradesh), Roorkee
(Uttarakhand) and Rabriyawas (Rajasthan).
In CY20, Freight & forwarding cost declined 2%YoY led by better logistics efficiency
and results of MSA with ACC. Road: Rail: Sea mix was at 65%/23%/12% in CY20. The
lead distance was 278 km vs. 276 km in CY19. Direct despatches from road increased
to 60% vs. 55% in CY19.
Exhibit 38: ACEM’s thrust to produce more blended products Exhibit 39: …energy consumption has increased; but it is below
has led to lower clinker factor however… the standard consumption level of 800 units
67.0 800 793
66.6
66.5 790
66.5
779
65.9 780

(kcal/kg of clinker)
66.0
770
65.5
756
(%)

65.0 760 753 755

64.9
65.0 747
64.6 750
64.5 740
64.0 730
63.5 720
CY15 CY16 CY17 CY18 CY19 CY20 CY15 CY16 CY17 CY18 CY19 CY20

Clinker factor (%) Kiln Heat Rate

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 40: Road transportation increased in CY20 Exhibit 41: Benefits of MSA can be seen in terms of reduction
in lead distance
100% 288 61
14 14 13 12 13 12 286
90%
286 60
80%
284 59
70%
282 281 58
60%
62 62 62 63 63 65 280 57
(kms)

50%

(%)
278
40% 278 56
276
30% 276 55
20% 274 54
10% 24 24 25 25 24 23 272 53
0% 270 52
CY15 CY16 CY17 CY18 CY19 CY20 CY17 CY18 CY19 CY20

Rail Road Sea Lead distance Road direct despatches (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 111
01 September 2021 Ambuja Cement
Exhibit 42: Electricity consumption has been flat Exhibit 43: Thermal substitution improved in CY18/19
77.8 77.7 5.7
6.0 5.6
77.6 5.4
5.1
77.4 5.0
77.4
(kWh/ton of cement)

4.2 4.2
77.2 4.0
77.0 77.0 77.0
77.0

(%)
76.8 3.0
76.6
76.6 2.0
76.4
1.0
76.2
76.0 -
CY15 CY16 CY17 CY18 CY19 CY20 CY15 CY16 CY17 CY18 CY19 CY20

Electricity consumption Thermal substitution rate

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Benefits of Master Supply Agreement getting reflected

In the May’17 board meeting, ACC and ACEM decided to set up a special committee
of directors to consider the merger of the two companies. However, this proposal
was called off later given the challenges of limestone mines transfer across 19 states.
In CY18, ACC and ACEM signed a Master Supply Agreement (MSA) to unlock synergy
benefits from a) procurement of clinker, cement, raw material and spare parts and b)
undertaking toll grinding in certain parts.
Exhibit 44: ACEM plans to reduce CO2 emission levels by 13% from the current levels
Material/Service Pricing formula
Manufacturing company’s Average Net Selling Price minus 5% discount, applied in the following manner: (a) In
case of ‘FOR Delivery’, the Average Net Selling Price applicable for such FOR Deliveries in the relevant district; (b)
Cement In case of ‘Ex-Delivery’, the Average Net Selling Price applicable for such Ex-Deliveries in the relevant district
Delivery point: (a) “FOR Delivery”: delivered at buying company’s dealer, retailer, or consumer site, as the case
may be; or (b) “Ex-Delivery”: delivered at the manufacturing plant or dispatching railway yard, as the case may be.
For each tonne, (A) + (B), where: (A) = Conversion charges determined at 8% of the Gross Fixed Assets Block; and
Toll Grinding (B) = Manufacturing plant’s variable cost per tonne of the previous quarter, plus 10% mark-up. Delivery point: At
the manufacturing plant.
Price will be one of the following: (a) Ex-works market price; or (b) Ex-works market price determined by an
independent agency appointed by Board of Directors of both, Ambuja and ACC; or (c) Manufacturing plant’s
Clinker
clinker variable cost of the previous quarter, plus 35% mark-up. The above hierarchy of methods will be followed
for arriving at the price of clinker. Delivery point: At the manufacturing plant.
Price will be one of the following: (a) Replacement cost thereof at manufacturing company’s location based on
market price; or (b) Manufacturing company’s landed cost thereof plus carrying cost of 8% per annum for the
Raw materials and Stores & Spares
holding period The above hierarchy of methods will be followed for arriving at the price of raw material and spare
parts. Delivery point: At manufacturing company’s location.
Source: Company

The benefits of the MSA are being realized through: 1) Clinker transfer from ACC’s
Lakheri (Rajasthan) plant to Dadri (Uttar Pradesh) grinding unit of ACEM which
earlier was being catered to from ACEM’s Rabriyawas (Rajasthan) plant; 2) clinker
transfer from ACC’s Bargarh (Odisha) or Chaibasa (Jharkhand) plants to Farakka
(West Bengal) and Sankrail (West Bengal) grinding units of ACEM. ACC had been
servicing the Delhi market also from Lakheri earlier. Post MSA, ACEM’s Roorkee
(Uttarakhand) plant is being used to service the Delhi market of both ACC and ACEM.
The management had guided PBT improvement of 3-5% for both companies due to
MSA.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 112
01 September 2021 Ambuja Cement
Exhibit 45: Under the MSA, both companies can leverage each other’s
capacity/infrastructure for mutual benefits

Source: Company, Systematix Institutional Research

In CY20, there was an increase of 2.1x YoY in goods purchased (Rs 2.2bn from Rs
1.04n) from ACC and a rise of 4.5x YoY in goods sold (Rs 5.2bn from Rs 1.2bn) to ACC.
As per the management, Rs 2.5bn of cumulative savings were achieved by ACC and
ACEM in CY20 due to the MSA. Benefits for ACEM were 5%+ of PBT.
Exhibit 46: Goods purchased from ACC increased ~2.1x in CY20… Exhibit 47: while goods sold to ACC increased 4.5x YoY in CY20;
4.5% of revenues
2,500 6,000 5.0
2,200 4.5
4.5
2,000 5,000
4.0
3.5
4,000
1,500 3.0
(Rs mn)
(Rs mn)

(%)
3,000 2.5
1,036
1,000 2.0
2,000
1.0 1.5
500 1.0
1,000 0.1
243 0.5
122 1,151 5,170
0 0.0
0
CY18 CY19 CY20
CY18 CY19 CY20
Purchase of goods from ACC Sale of goods to ACC % of reveunes (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Scope for more cost savings

The management of ACEM believed that a merger between the two companies could
lead to a potential cost savings of USD 150mn led by a) USD 60-70mn savings due to
supply chain optimisation as the lead distance would reduce and service levels would
improve and b) USD 60-70mn savings in fixed cost, procurement and shared services
as productivity and efficiency would improve.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 113
01 September 2021 Ambuja Cement
Exhibit 48: The merger of ACC and ACEM could lead to further cost savings

Source: Company, Systematix Institutional Research

Exhibit 49: Cost savings mostly expected in the form of procurement of raw-materials/goods

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 114
01 September 2021 Ambuja Cement

Financial Highlights
We estimate ACEM to report revenue CAGR of 15% in CY20-23E led by 12.6% volume
growth. We expect capacity utilisation to be at 86%/94%/98% in CY21/22/23E.
Further, we expect a 1.6% CAGR in cement realisation during CY20-23E. ACEM is
focused on premium products and hopes to touch 15% of total retail volumes. It
launched KAWACH in CY20, which should boost its already strong premium products
portfolio.
Exhibit 50: ACEM to report 15% revenue CAGR during CY20-23E… Exhibit 51: …led by robust volume CAGR of 12.6% YoY
200 30 25
180 24.0 19.5
25 20
160
140 20 15
13.6 8.8 9.3 9.2
120 10
(Rs bn)

15

(%)
10.8 10.8 6.1

(%)
100 8.7 4.4 3.8
5 3.2
80 10 6.1 1.4 1.4
(1.6)
60 2.7 (2.5) 5 0 2.5
40 (5.6)
104.5

113.6

116.7

113.7

141.0

156.2

173.1

0 -5
20
0 -5 -10
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E
Sales YoY change (RHS) Volume change YoY Realisation change YoY

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

We expect a 19.7% CAGR in operating profit during CY20-23E led by 1) strong volume
growth, 2) installation of 54MW/24MW WHRS/solar plants and 3) higher transaction
value under the Master Supply Agreement. Profit is expected to grow at a CAGR of
20.5% between CY20-23E.
Exhibit 52: EBITDA CAGR of 19.7% over CY20-23E Exhibit 53: PAT CAGR of 20.5% CAGR over CY20-23E

50 40 35 40
45 35
31 30
40 30

35 25
22 25
(Rs bn)

(Rs bn)

20
(%)

(%)
30
15
25 13 20
10
20
4 15 5
15 0
10 -5 10 -5
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E
EBITDA YoY change (RHS) Adj. PAT YoY change (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

There was a sharp increase in margins in CY20 led by a 3% YoY rise in cement
realisation on a high base (+4% in CY19) and a reduction in operating costs by Rs
117/ton. This led to the EBITDA margin expanding to 23.3% from 18.4% in CY19. We
expect ACEM to maintain margins led by 1) strong volume growth, 2) cost savings
and 3) stable realisations. Its EBITDA/ton was Rs 1,168 in CY20, which should
increase to Rs 1,405 by CY23E. In 1HCY21, EBITDA/ton improved to Rs 1,365 vs. Rs
1,203 in 1HCY20.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 115
01 September 2021 Ambuja Cement
Exhibit 54: Margins to sustain at higher levels Exhibit 55: EBITDA/ton expected to increase at a 6.4% CAGR over
CY20-23E

30 1,600
26.2 1,362 1,405
25.6 25.8 1,400 1,334
25 23.3 1,168
1,200
24.1 24.1 24.7
18.6 18.4 1,000 896
20 22.0 844
16.7 776

(Rs)
800
(%)

17.4 17.6 17.6 18.1

15 16.5 600
15.1 15.7
400
13.1
10 11.7
10.6 200
0
5
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
EBITDA margin EBIT margin Adj. PAT margin EBITDA/ton

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Improvement in profitability and release of working capital (cumulative reduction of

Rs 7.6bn in CY19/20) led to improvement in operating cash flows (OCF) and free cash
flows (FCF) in the last few years. OCF and FCF grew at a CAGR of 12% and 8%,
respectively, between CY17-20.
Given the strong top-line growth and continued focus on controlling opex, we expect
ACEM to generate robust OCF of Rs 89.3bn between CY20-23E. Higher OCF will help
it fund future capex through internal accruals. We expect FCF of Rs 57.3bn between
CY20-23E.
Exhibit 56: Higher cash generation to help fund future capex through internal accruals

40 30

30 25

20 20

10 15
(Rs bn)

(Rs bn)
0 10

-10 5

-20 0

-30 -5
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
CFO Capex FCFF (RHS)
Source: Company, Systematix Institutional Research

Led by strong FCF generation in CY20, ACEM announced a dividend of Rs 18 per

share amounting to Rs 39.8bn (including taxes), implying an all-time high yield of
5.8%. We estimate a dividend pay-out of 20-21% over CY21-23E.
The company has historically been cash positive and we estimate net cash of Rs
76.2bn in CY23E vs. Rs 28.8bn in CY20.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 116
01 September 2021 Ambuja Cement
Exhibit 57: Estimate dividend payout of 20-21% Exhibit 58: ACEM’s balance sheet to improve further

45 5 90 0
4.4
40 5 80
4 0
35 70
4
30 60 0
3

(Rs bn)
(Rs bn)

25 50

(%)

(x)
3 0
20 40
2
15 30 0
2
10 0.7 0.6 0.7 0.8 20
0.5 1 0
0.4

34.7

32.9

46.6

28.8

33.8

52.6

76.2
5 1 10

0 0 0 0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E

Dividend (incl. tax) Dividend Yield (%) Net Cash Net Debt: Equity
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

ACEM’s RoE improved to 15% in CY20 from 12% in CY17 primarily led by 1) 3.4%
CAGR in cement realisation between CY17-20 as cement prices increased in
North/Central/Gujarat markets coupled with the increasing share of value-added
products (11% contribution to total sales in CY20 vs. 8% in CY19) and 2) control on
freight costs as it started accruing synergy benefits of MSA and logistics cost/ton
grew at a 0.3% CAGR during the same period.
Going forward, we expect the company’s RoE to improve further to 19-21% led by 1)
4.5mtpa incremental capacity additions, though grinding capacity addition will be
just 3.3mtpa, indicating better asset sweating, 2) incremental cost savings from
WHRS and solar power plants and 3) other cost-saving measures (railway siding at
Rajasthan, the start of coal mining from Gare-Palma IV coal block).
Exhibit 59: Du-pont analysis
Particulars CY17 CY18 CY19 CY20 CY21E CY22E CY23E
PAT/PBT 75.7% 73.9% 78.5% 74.1% 74.9% 74.9% 74.9%
PBT/EBIT 93.8% 95.2% 95.9% 96.7% 97.4% 97.6% 97.8%
EBIT/Sales 16.5% 15.1% 17.4% 22.0% 24.1% 24.1% 24.7%
Asset turnover (x) 0.96 0.98 0.93 0.94 1.16 1.10 1.05
Assets/Equity (x) 1.05 1.04 1.03 1.02 1.02 1.02 1.01
ROE (%) 11.9 10.8 12.5 15.0 20.8 19.7 19.3
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 117
01 September 2021 Ambuja Cement
Its RoCE is expected to improve to 35% in CY21E from 25.7% in CY20 due to the
improvement in margins. We expect RoCE to be at 31-32% in CY22/23E.
Improvement in profitability, the release of working capital and higher dividend pay-
out in CY20 led to an improvement in RoIC to 39.8% in CY20 vs. 22.4% in CY19. We
expect RoIC to be at 49.1%/42%/46.9% in CY21/22/23E.
Exhibit 60: Return ratios improved in CY20; RoE/RoCE expected to improve further

60
49.1
50 46.9
42.0
39.8
40

(%)
30 35.0
22.4 32.1 30.6
20.5 18.6
20 25.7
20.7 20.0 20.8 19.7 19.3
18.9
10 15.0
11.9 10.8 12.5
0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
RoE RoCE RoIC

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 118
01 September 2021 Ambuja Cement

Cash flow analysis & corporate governance

FCF generation: ACEM generated cumulative FCF of ~Rs 53bn between CY16-20.
FCF utilisation: Of the total FCF generation of Rs 53bn, ACEM almost paid the entire
amount (Rs 52.6bn) towards dividend (excl. dividend tax) in the past 5 years.
FCF expectation: We expect free cash flow to decline to Rs 7.9bn in CY21E led by
capex for expansion projects (Marwar Mundwa plant) – Rs 18bn in CY21E vs. Rs
9.8bn in CY20. FCF is expected to improve to Rs 21.9bn/Rs 27.4bn in CY22/23E.
Earnings quality: During the last 10 years, ACEM has earned a cumulative PAT of Rs
131bn against which it generated OCF of Rs 168bn (1.28x of profits).
Exhibit 61: FCF to dip in CY21 due to the completion of Marwar Exhibit 62: Earnings quality reflects in cumulative OCF
Mundwa project

30 27.4 4.0 180 128% 130%

128%
3.5 160 128%
25 21.9
3.0 140 126%
20 120 124%
16.3 2.5

(Rs bn)
12.9 13.7 100 122%
15
(%)
(Rs bn)

2.0
7.9 80 118% 120%
10 1.5
60 118%
1.0 40 116%

131.1

168.4
5

48.1

56.6

69.9

89.3
(0.2) 0.5 20 114%
0 0 112%
-
3Yrs 5Yrs 10Yrs
-5 (0.5)
Cumulative PAT
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
Cumulative OCF
Free cash flow FCF Yield (%) (RHS) Cumulative OCF as % of Cum. PAT (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 63: Contingent liabilities

(Rs mn) CY16 CY17 CY18 CY19 CY20
Demand from Competition Commission of India 12,361 13,688 15,020 16,355 17,677
Others 7,915 7,707 14,087 14,903 15,094
Total 20,276 21,395 29,106 31,258 32,771
% of net worth 9% 11% 13% 13% 13%
Source: Company, Systematix Institutional Research

Exhibit 64: Contingent liabilities

Other key monitorables CY16 CY17 CY18 CY19 CY20
Remuneration to Directors & KMPs (Rs mn) 128 181 165 233 268
% of PBT 0.7% 0.7% 0.6% 0.8% 0.8%
Auditor's remuneration (Rs mn) 36 22 26 23 23
% of PBT 0.2% 0.1% 0.1% 0.1% 0.1%
Pledged shares (%) - - - - -
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 119
01 September 2021 Ambuja Cement
Exhibit 65: Significant transactions with related party
Particulars (Rs mn) Name of the party CY16 CY17 CY18 CY19 CY20

Purchase of goods or Fixed Assets Lafarge Holcim Energy, ACC Ltd. 1,320 3,090 2,918 4,872 4,550

Sale of goods ACC Ltd. - - 122 1,151 5,170

ACC Ltd.,
Holcim Technology Ltd.
Receiving of services Switzerland, 900 2,220 2,191 2,084 2,090
Holcim Services (South Asia)
Limited
Rendering of services ACC Limited - 480 471 325 390

Total 2,220 5,790 5,702 8,432 12,200

% of sales 2% 6% 5% 7% 11%
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 120
01 September 2021 Ambuja Cement

Systematix vs. Consensus

Our revenue and EBITDA estimates are largely in-line with the Bloomberg consensus
for CY21E, CY22E and CY23E. We believe ACEM will derive significant cost savings
from 1) operating leverage from higher output led by the commissioning of the
Marwar-Mundwa project, 2) setting up of 54MW/24MW WHRS/solar plants in the
medium-term and 3) higher transaction value under the Master Supply Agreement.
The above factors give us comfort on ACEM bettering market estimates on the cost
front.
Exhibit 66: ACEM Standalone: Bloomberg vs. our estimates
Particulars CY21E CY22E CY23E
Revenues (Rs bn)
Consensus 137 159 178
Systematix est. 141 156 173
% Difference 3% -2% -3%
EBITDA (Rs bn)
Consensus 35 40 45
Systematix est. 36 40 45
% Difference 2% 1% 2%
EBITDA Margin (%)
Consensus 26% 25% 25%
Systematix est. 26% 26% 26%
Difference (bps) (10) 76 111
Source: Company, Systematix Institutional Research

Exhibit 67: Key assumptions

Particulars CY18 CY19 CY20 CY21E CY22E CY23E
Sales Volume (mt) 24.3 24.0 22.6 27.0 29.6 32.3
Realization (Rs/ton) 4,506 4,734 4,934 5,131 5,208 5,286
Key Unit Cost (Rs/t)
Raw material 415 415 387 425 438 451
Purchase of goods 2 37 87 91 104 119
Employee cost 279 280 295 257 249 242
Power & Fuel 1,045 1,078 994 1,077 1,076 1,063
Freight 1,345 1,290 1,260 1,265 1,295 1,326
Other expense 827 850 778 758 756 748
Total Cost 3,913 3,950 3,801 3,873 3,918 3,949
EBITDA/ton 776 896 1,168 1,334 1,362 1,405
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 121
01 September 2021 Ambuja Cement

Key downside risks

1) Delay in the commissioning of the Marwar Mundwa project: There has been a
delay in the commissioning of the Marwar Mundwa project and we have
assumed that this plant will get commissioned by 3QCY21. Although we
understand that the delay was caused due to the COVID-19 pandemic, any
further delay in the commissioning of this project may lead to lower-than-
estimated volume growth for the company.
2) Inflationary pressures in fuel costs: There has been a sharp increase in the
prices of pet coke, coal and diesel in the last few months. The price of pet coke is
up almost 75% over the last year while the imported coal price has increased
30%+. Current pet coke prices are up ~40% vs. the 4QFY21 consumption price.
Though cement companies are trying to control energy costs by changing their
fuel mix (lower pet coke usage, usage of Australian Coal etc.), the continued
escalation in coal/pet coke prices could impact our earnings estimates if the
industry is unable to pass on the cost increases to consumers.
To mitigate the above, ACEM is 1) exploring new contracts to secure competitive
supply sources wherever possible and 2) investing in infrastructure to ensure the
seamless availability of fly ash.
3) Prolonged pandemic-related restrictions/lockdowns: We estimate ACEM to
report ~20% volume growth in CY21E. However, continued localised lockdowns
could act as a downside risk to our estimates. Besides hurting demand,
lockdowns/restrictions impact the mobilisation of labour at construction sites
and delay the process. However, we derive confidence from the vaccination pace
in India and believe that economic recovery and normalcy will be attained by
2HCY21E.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 122
01 September 2021 Ambuja Cement

Valuation and View

ACEM has added capacity at a slower pace than most of its peers in the last 10 years.
Between FY10-21, the company’s capacity grew at a CAGR of 4.9% whereas most of
its peers witnessed capacity growth of 10-17%. It is expanding its clinker capacity by
3.1mtpa and grinding capacity by 1.8mtpa by setting up a greenfield plant at Marwar
Mundwa, Nagaur, Rajasthan. It is also increasing its grinding capacity by 1.5mtpa at
its existing unit in Ropar, Punjab.
The company is evaluating brownfield expansion opportunities at Bhatapara,
Chhattisgarh and Maratha, Maharashtra plants. It aims to add 15mtpa grinding
capacity in the mid-term, which would increase its grinding capacity to 50mtpa.
Capacity additions and cost-saving initiatives (commissioning of WHRS/Solar power
plants, the start of coal mining from Gare-Palma IV coal block and benefits from MSA
with ACC) should help the company generate EBITDA and profit CAGR of 19.7% over
CY20-23E. The management hinted that benefits due to the MSA were 5%+ of PBT
for ACEM in CY20 and there is scope to further improve profitability.
The improvement in profitability and release of working capital (cumulative
reduction of Rs 7.6bn in CY19/20) led to higher OCF and FCF in the last few years.
OCF and FCF grew at a CAGR of 12% and 8% between CY17-20. We expect ACEM to
generate OCF of Rs 89.3bn between CY20-23E, which should help it fund future
capex through internal accruals. We expect FCF generation of Rs 57.3bn between
CY20-23E.
ACEM’s RoE improved to 15% in CY20 vs. 12.5% in CY17 led by strong improvement
in profits, the release of working capital and higher dividend pay-out. We expect
ACEM to report RoE of 19-21% till CY23E. RoCE is expected to improve to 35% in
CY21E from 25.7% in CY20 due to an improvement in margins. We expect RoCE to be
at 31-32% in CY22/23E. ACEM has historically been a cash positive company and we
estimate net cash of Rs 76.2bn in CY23E vs. Rs 28.8bn in CY20.
ACEM trades at 15.9/13.8x/11.7x CY21/22/23E EV/EBITDA and USD 247/239/229
CY21/22/23E EV/ton. The stock has traded at an average EV/EBITDA of 13.3x in the
last 10 years. Going forward, with the improvement in profitability and stable return
ratios, we expect ACEM to trade at its historical valuations. We value it at 14x CY23E
EV/EBITDA to arrive at a target price of Rs 500, an upside of 19% from the CMP. We
value ACC, its subsidiary, at 12x CY23E EV/EBITDA; we are not factoring in any
HoldCo discount as we believe there is a possibility of a merger in the near-term. We
initiate coverage on the stock with a BUY rating. At our TP, the stock will trade at
16.3x/14x CY22/23E EV/EBITDA and USD 183/177 CY22/23E EV/ton.
Exhibit 68: 1- year forward EV/EBITDA Exhibit 69: 1-year forward EV/ton
30.0 300
25.0 250
20.0 200
(US$/ton)
(x)

15.0 150

10.0 100

5.0 50

0.0 -
Aug-12

Aug-13
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 123
01 September 2021 Ambuja Cement

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E
Net Sales 116,679 113,719 140,982 156,246 173,057 Equity share capital 3,971 3,971 3,971 3,971 3,971
Growth (%) 2.7 -2.5 24.0 10.8 10.8 Reserves & surplus 218,081 199,187 218,211 239,493 263,721
Total Expenditure 95,190 87,253 104,869 115,944 127,648 Net worth 222,052 203,159 222,182 243,465 267,693
EBITDA 21,489 26,466 36,113 40,301 45,409 Loan Funds 353 436 436 436 436
Growth (%) 13.6 23.2 36.4 11.6 12.7 Net deferred tax liability 2,161 1,860 1,860 1,860 1,860
EBITDA margin (%) 18.4 23.3 25.6 25.8 26.2 Total Liabilities 224,565 205,454 224,478 245,760 269,988
Depreciation 5,438 5,212 5,883 6,663 6,868
EBIT 20,315 24,974 33,963 37,615 42,777 Net block 58,125 59,315 86,170 88,507 88,639
EBIT margin (%) 17.4 22.0 24.1 24.1 24.7 Capital work in progress 11,087 18,737 4,000 2,000 2,000
Other Income 4265 3720 3734 3976 4235 Investment 117,890 117,877 117,877 117,877 117,877
Interest expenses 835 831 872 916 961 Current Assets 82,806 58,884 67,894 89,449 116,050
PBT 19,480 24,144 33,091 36,699 41,815 Inventories 9,541 7,466 9,270 10,274 11,379
Tax 4195 6243 8313 9219 10504 Sundry debtors 5,132 1,915 3,090 3,853 4,741
Effective tax rate (%) 21.5 25.9 25.1 25.1 25.1 Cash & bank balance 46,995 29,243 34,274 53,063 76,670
Adjusted PAT 15,285 17,901 24,779 27,480 31,311 Loans & advances 8,245 8,790 9,290 9,790 10,290
Reported PAT 15,285 17,901 24,779 27,480 31,311 Other current assets 12,893 11,470 11,970 12,470 12,970
Growth (%) 2.8 17.1 38.4 10.9 13.9 Current liability & Prov. 45,342 49,360 51,463 52,073 54,578
Source: Company, Systematix Institutional Research Net current assets 37,464 9,525 16,431 37,376 61,472
Total Assets 224,565 205,454 224,478 245,760 269,988
Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E YE: Mar CY19 CY20 CY21E CY22E CY23E
PBT (Ex-Other income) 19,480 24,144 29,358 32,723 37,580 Profitability (%)
Depreciation 5,438 5,212 5,883 6,663 6,868 EBITDA Margin 18.4 23.3 25.6 25.8 26.2
Interest Provided (1,790) (1,451) 872 916 961 Net Margin 13.1 15.7 17.6 17.6 18.1
Other Non-Cash items (1,357) (870) - - - ROCE 20.0 25.7 35.0 32.1 30.6
Chg in working cap 3,877 3,676 (1,876) (2,156) (489) ROE 12.5 15.0 20.8 19.7 19.3
Tax paid (808) (4,648) (8,313) (9,219) (10,504) RoIC 22.4 39.8 49.1 42.0 46.9
Operating Cashflow 24,840 26,062 25,924 28,927 34,416 Per Share Data (Rs)
Capital expenditure (11,114) (9,778) (18,000) (7,000) (7,000) EPS 7.7 9.0 12.5 13.8 15.8
Free Cash Flow 13,726 16,284 7,924 21,927 27,416 CEPS 10.4 11.6 15.4 17.2 19.2
Other income 3,737 3,365 3,734 3,976 4,235 BVPS 111.8 102.3 111.9 122.6 134.8
Investments (3) (2) - - - DPS 1.5 18.0 2.6 2.8 3.2
Investing Cashflow (7,380) (6,415) (14,266) (3,024) (2,765) Valuations (x)
Equity Capital Raised - - - - - PER 54.7 46.7 33.7 30.4 26.7
Loans Taken / (Repaid) - (237) - - - P/CEPS 40.3 36.2 27.3 24.5 21.9
Interest Paid (548) (722) (872) (916) (961) P/BV 3.8 4.1 3.8 3.4 3.1
Dividend paid (incl tax) (3,320) (36,646) (5,755) (6,198) (7,083) EV / Sales 4.8 5.1 4.1 3.6 3.1
Income from investments - - - - - EV / EBITDA 26.2 21.9 15.9 13.8 11.7
Others - - - - - Dividend Yield (%) 0.4 4.3 0.6 0.7 0.8
Financing Cashflow (3,868) (37,604) (6,627) (7,113) (8,045) Gearing Ratio (x)
Net chg in cash 13,592 (17,957) 5,031 18,789 23,607 Net Debt/ Equity -0.2 -0.1 -0.2 -0.2 -0.3
Opening cash position 31,503 45,123 29,243 34,274 53,063 Net Debt/EBITDA -2.2 -1.1 -0.9 -1.3 -1.7
Closing cash position 45,123 27,169 34,274 53,063 76,670 Working Cap Cycle (days) -63.3 -94.9 -73.0 -62.0 -56.0
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 124
 Systematix
Institutional Equities

ACC 01 September 2021

Capex completion holds key; cost-saving initiatives yielding results

INITIATING COVERAGE The focus on cost-efficiency has led to an improvement in ACC's sales
Sector: Cement Rating: BUY volume/profitability post CY16. Its sales volume grew at a CAGR of 7.9% over CY16-
19 (before the COVID-19-led disruptions) after remaining stagnant between CY11-
CMP: Rs 2,413 Target Price: Rs 2,995
16. EBITDA/ton grew at a CAGR of 11% over CY16-20 driven by cost-efficiency
Stock Info programs (Project Parvat and Master Supply Agreement with ACEM). Holcim Group
Sensex/Nifty 56,890/16,931 companies (ACC and ACEM) have seen slower capacity additions vs. peers;
Bloomberg ACC IN however, the management of ACEM (promoter group) recently indicated its
Equity shares 188mn intention to pursue growth opportunities. Being a cash surplus company, ACC will
52-wk High/Low Rs 2,456/1,290 be on a strong footing to pursue capex. The company’s ongoing capex in the
Face value Rs 10 Central region will lead to a capacity addition of 4.6mtpa (13% of existing capacity),
M-Cap Rs 453bn/USD 6.1bn boosting its volume growth and positioning in the region (4.5% increase in capacity
3-m Avg volume USD 19.4mn share). We expect a RoE of 14-15% between CY21-23E vs. 12.1% in CY20. It has
Financial Snapshot (Rs bn) remained cash-positive historically and we estimate net cash to be at Rs 94.9bn in
Y/E March CY21E CY22E CY23E CY23E vs. Rs 57.4bn in CY20. Valuations remain attractive at 12.4x/11.1x/9.2x
Sales 162 176 197 CY21/22/23E EV/EBITDA and USD 152/138/124 CY21/22/23E EV/ton. We initiate
EBITDA 31 34 39 coverage on the stock with a BUY rating and value it at 12x CY23E EV/EBITDA to
PAT 20 21 25 arrive at a target price of Rs 2,995.
EPS (Rs) 105 114 131
Capex in the Central region to drive growth; higher cash reserves is a positive
PE (x) 23.1 21.2 18.4
EV/EBITDA (x) 12.4 11.1 9.2 After years of slow capacity addition (4% CAGR between CY08-20), ACC aims to
RoE (%) 14.6 14.1 14.4 commission 2.7/4.8mtpa of clinker/cement capacity in Central India by CY23E. It has
RoCE (%) 19.3 18.7 19.2 already commissioned 1.4mtpa of grinding capacity at Sindri, Jharkhand in 1QCY21.
Dividend yield (%) 0.6 0.7 0.7
We expect its sales volume to grow at a 10.1% CAGR over CY20-23E. ACC’s net cash
Shareholding pattern (%) levels should improve to Rs 94.9bn in CY23E from Rs 57.4bn in CY20, placing it in a
Jun-21 Mar-21 Dec-20 comfortable position to pursue growth opportunities.
Promoter 54.5 54.5 54.5 Cost-efficiency measures are yielding results
–Pledged - - -
FII 13.6 12.6 11.5 The company has undertaken measures to mitigate input cost pressures and improve
DII 19.4 20.3 20.7 profitability. These measures include a) ‘Project PARVAT’ which yielded Rs 110/ton
Others 12.5 12.5 13.2 savings in CY20 & will ensure continued cost-savings, b) higher transaction value
under the Master Supply Agreement with ACEM leading to operating cost synergies,
Stock Performance (1-year) c) increasing the share of premium products and d) a reduction in fixed costs.
2600
Consequently, ACC’s EBITDA/ton increased to Rs 972 in CY20 from Rs 746 in CY18;
2400 we expect it to increase to Rs 1,145 in CY23E (on the high base of CY20; EBITDA/ton
2200
2000 grew at a CAGR of 14.2% over CY18-20).
1800
1600
1400
Valuation and recommendation
1200
1000 We expect EBITDA and PAT CAGR of 16.3% and 18.9%, respectively, over CY20-23E.
Nov-20

Jan-21
Aug-20

Sep-20

Dec-20

Feb-21
Mar-21

Apr-21

Jul-21

Aug-21
Oct-20

May-21

Jun-21

ACC’s RoE improved to 12.1% in CY20 vs. 10.1% in CY17 led by an improvement in
ACC Sensex
profit and the release of working capital; we expect its RoE to improve further to 14-
15% by CY23E. The stock trades at 12.4x/11.1x/9.2x CY21/22/23E EV/EBITDA and
Sanjeev Kumar Singh USD 152/138/124 CY21/22/23E EV/ton. It has traded at an average EV/EBITDA of
sanjeevsingh@[Link] 10.8x in the last 14 years. Going forward, with the improvement in profitability and
+91 22 6704 8017 return ratios, we expect the company to trade above its historical valuations. We
Rahul Jain value it at 12x CY23E EV/EBITDA to arrive at a target price of Rs 2,995 (an upside of
rahuljain@[Link] 24% from the CMP) and initiate coverage on the stock with a BUY rating.
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 125
01 September 2021 ACC

Story in charts
Exhibit 1: Lagged its peers in capacity additions… Exhibit 2: …leading to lower volume growth vs. industry
18 16.5
20
16 14.5
14 15
12 10.3 10.1
9.2 9.4 10
10 8.0
(%)

8 5

(%)
6 4.0 4.2 0
4
2 -5
0
-10

JK Lakshmi
ACC

UltraTech

Shree Cement

Birla Corp
Dalmia Bharat
ACEM

JK Cement

Ramco Cements
-15

CY14

CY19
CY09

CY10

CY11

CY12

CY13

CY15

CY16

CY17

CY18

CY20
ACC Industry

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: but operated at higher utilisation rates Exhibit 4: Clinker capacity mix post the ongoing expansions
81.8

84.9

83.4
79.5
79.3

90
78.9
78.1

78.0

77.9

73.6
73.5

71.2
71.1

71.1
70.7

80
69.0

68.6

68.3

17%
66.4
65.6
64.0

61.6

70 28%
60
North
50
(%)

East
40
30 West
21% Central
20
10 South

0
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20
24%
10%
Capacity utilisation Industry utilisation

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: Project Parvat led to cost savings of Rs 100/ton in CY20 Exhibit 6: Renewable sources should contribute to 9.7% of
electricity consumption by CY23E

7 6.6
6.3 6.3
6

5 4.4

4 3.7 3.7 3.6 3.4 3.4

(%)

3 2.5 2.5 2.3

2

0
CY18 CY19 CY20 CY21E CY22E CY23E

Solar+Wind power WHRS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 126
01 September 2021 ACC
Exhibit 7: Employee base declined at a 5.6% CAGR, leading Exhibit 8: Premium products’ volume grew at a 19% CAGR over
to lower employee cost/ton CY15-20; 21.3% of sales volumes in CY20

10,000 340 6 36.0 40

328 329
9,000 325 330 35
8,000 5
312 320 27.0 30
7,000 308
310 4
6,000 25

(Rs/ton)
299
(Units)

(mn tons)
20.0
5,000 300

(%)
3 20
4,000 286 290
3,000 11.0 15
280 2 9.5
2,000 10
9071

8368

7833

7422

6731

6643

6401
1,000 270 1 3.0 5
0 260
CY14 CY15 CY16 CY17 CY18 CY19 CY20 0 0
CY15 CY16 CY17 CY18 CY19 CY20
No. of employees Employee cost/ton Sales volume of premium products YoY growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Sale of goods to ACEM rose ~2x YoY in CY20… Exhibit 10: …while purchases increased by ~5.3x YoY
2,500
2220 6,000 5
5050
2,000 5,000
4
3.7
1,500 4,000
(Rs mn)

3
(Rs mn)

1045

(%)
3,000
1,000
2
2,000
500 262 954 1
1,000
0.6
121
0 0.1
0 0
CY18 CY19 CY20
CY18 CY19 CY20
Sale of goods to Ambuja Purchase of goods from Ambuja % of revenues

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1-year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
20.0 180

160
15.0
140
(US$/ton)

120
10.0
(x)

100

5.0 80

60
0.0 40
Aug-11

Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14

Aug-20
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 127
01 September 2021 ACC

Company Background
ACC is a leading pan-India cement producer with a cement capacity of 34.45mtpa. It
ACC aims to commission 2.7/4.8mtpa has 17 cement manufacturing units, 90+ ready mix concrete plants, 6,600+
of clinker/cement capacity by 2024, employees with sales offices across the country and a vast distribution network of
taking its grinding capacity to
50,000+ dealers & retailers. In 2005, it became a part of the Holcim Group of
39.3mtpa.
Switzerland. In 2015, Holcim and Lafarge merged to form LafargeHolcim – the global
leader in building materials and solutions. ACC offers a bouquet of cement and
construction chemicals, ready mix concrete and dry mix products.
Exhibit 13: Over the years, ACC has set up clinker & grinding units and ready mix concrete plants across India

Source: Company, Pls note: Red squares are regional sales offices, yellow/green cirlces are sales units/training centres

Exhibit 14: ACC - Shareholding pattern

Holderind Investments
Ltd. (100% subsidiary of
Lafarge Holcim)

63.29 %
4.48 %
Ambuja Cements

50.05 %

ACC Ltd.

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 128
01 September 2021 ACC

Manufacturing facilities
Exhibit 15: Chanda unit, Maharashtra (4mtpa) Exhibit 16: Gagal unit, Himachal Pradesh (4.4mtpa)

Source: Company Source: Company

Exhibit 17: Wadi-A unit, Karnataka (5.6mtpa) Exhibit 18: Sindri unit, Jharkhand (3.7mtpa)

Source: Company Source: Company

Exhibit 19: Alternate fuel & raw material unit at Wadi plant, Exhibit 20: Chaibasa unit, Jharkhand (0.9mtpa)
Karnataka

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 129
01 September 2021 ACC
Exhibit 21: The Gold and Silver range of cement assure superior quality for specialised applications and environment besides being
immensely suited for general construction

Source: Company

Exhibit 22: Construction chemicals & dry mix range for retail Exhibit 23: Dry mix range for institutional clients
customers

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 130
01 September 2021 ACC
Exhibit 24: Management team details
Name Designation Background

Took charge as MD & CEO in Feb'20. He has +20 years of leadership experience across the
Mr. Sridhar
MD & CEO construction products, media and FMCG industries at ACC, STAR & Marico. He is an Engineering
Balakrishnan
graduate from the IT-BHU, Varanasi and MBA from XLRI, Jamshedpur.
Was appointed as the CFO in Sep'20. Previously, he was the Vice President & CFO of Whirlpool India
Ltd. Before Whirlpool, he was associated with LG Electronics, Samtel Colour Limited, Apollo Tyres
Mr. Yatin Malhotra Chief Financial Officer
Group & Escorts Group. He is a qualified CA, CS and CWA and has extensive experience in operating
and strategic finance.

Is the CMO & Head of New Products & Services since Aug'18. He joined ACC from Pidilite Industries
Mr. Ashish Prasad Chief Marketing Officer
where he was the Chief Operating Officer of Construction Chemicals.

Has more than 35 years of experience in the fields of structural design, manufacturing, sales and
Mr. Pralhad Chief Executive Officer-
marketing, consultancy, project management, construction, ready mixed concrete and new product
Mujumdar ACC Concrete & B2B
development.
Has more than 30 years of experience in supply chain, finance, projects and IT. He has worked with
Chief Supply Chain
Mr. Suresh Rathi leading conglomerates like Larsen & Toubro, Aditya Birla and Vedanta and joined ACC from Dalmia
Officer
Bharat.
A chartered accountant with +30 years of experience in business strategy, building logistics
Mr. Rajeev Mehta Chief Logistics Officer infrastructure, supply chain transformation and cost optimization in the building materials and
petrochemicals space. He has worked with UltraTech Cement for ~20 years.
Has been with the company since Sep'19; was previously employed as a Compliance Officer by
Chief Legal Officer &
Mr. Rajiv Choubey Vedanta Ltd and as Secretary & Head-Legal by Sterlite Industries (India). He graduated from the
Company Secretary
University of Delhi.
Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 131
01 September 2021 ACC
Exhibit 25: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Key Risks YoY Growth
initiatives
 Overall cement demand is
likely to grow at ~5% in 2017.
 Step-up the sale of
 In 2017, the cement industry  Commissioned new value-creating Premium
 Fuel
will continue to face the 2.79mtpa clinker plant at products.
challenge of excess capacity,  Fair Competition Volume: -3%
Jamul, Chhattisgarh.  Aim for a higher share of
leading to intense Directive Revenue: -7%
CY16 blended cement using
competition.  Also, new grinding units of EBITDA: -4%
1.1 & 1.35mtpa capacity at flyash & slag.  Capacity addition PAT: -7.5%
 Cut in mortgage rates and Jamul & Sindri, Jharkhand. by peers
 Higher share of petcoke
infrastructure spending by
in the overall fuel mix.
government to boost cement
demand.
 Increased usage of
 Cement demand is expected
cheaper activated  Raw Material risk
to increase from ~6% in CY17
gypsum and change in
to ~7% in 2018.
mix optimization. Volume: 14%
 Affordable housing, smart  Limestone Revenue: 21%
CY17  No plans enumerated.  Improved evacuation
cities project, highways availability EBITDA: 29.5%
efficiency, lead
through “Bharatmala Project”  Capacity addition PAT: 33%
reduction by increasing
& constructing concrete roads by peers
market share in home
to drive demand.
markets.
 Greenfield expansion of  Improving fly-ash
 Cement demand is expected 3/1mtpa of clinker/cement absorption; higher
to grow by 7-8% led by capacity at Ametha, MP. blended cement share.  Fuel prices
affordable housing, rural  Expansion of 2.2/1.6mtpa  Maximizing the use of
Individual Home Builders at Sonebhadra/Tikaria, UP. linkage coal; judicious  Limestone reserve Volume: 8%
(IHBs) & infrastructure. procurement of market depletion & RM Revenue: 11.5%
CY18  1.1mtpa brownfield at
coal through e-auctions availability EBITDA: 11%
 Eastern region would be a key Sindri, Jharkhand; the
and imports. PAT: 17.5%
demand driver along the with above projects would  Capacity addition
the Northern & Central entail an investment of  Availing beneficial by peers
regions. ~Rs30bn to be funded railway schemes to
internally. reduce freight.

 The sector outlook remains  Setting up of greenfield IC  Launched project

positive with estimated plant in Ametha with 'PARVAT', a cost-saving
demand growth of 5% in 3/1mtpa of clinker/cement initiative, to save on  Fuel
2020; the spending of USD capacity. cost heads like logistics,
 Limestone & slag Volume: 2%
1.5trn under the National  Setting up of 1.1/1.4mtpa warehousing, RM etc.
availability Revenue: 6%
CY19 Infrastructure Pipeline over of PSC/PCC grinding facility  Judicious procurement EBITDA: 14%
the next 5 years is a positive. at Sindri, Jharkhand.  Capacity addition
of market coal through PAT: 26%
 East & Central India to lead e-auctions & imports, by peers
 Expansion of
the demand, led by affordable Sonebhadra/Tikaria unit by higher consumption of
and infrastructure demand. 2.2/1.6mtpa PPC cement. AFR.

 Expanding its WHRS  Continual measures to

 The outlook for CY21 is robust
capacity by 22.5MW; to be maximize the use of
with estimated growth of  Raw material
operational by CY22. cheaper fuel. Volume: -11.5%
+10% YoY.
 Fuel Revenue: -12%
CY20  Aims to complete the  Maximizing the use of
 Primary drivers of growth will EBITDA: 3%
4.8/2.7mtpa renewable sources,  Limestone
be infrastructure and PAT: 8%
grinding/clinker capacity at including solar, wind &
affordable housing.
the earliest. hydropower.

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 132
01 September 2021 ACC

Investment Analysis
Lagged its peers in capacity additions…
Holcim group companies, ACC and ACEM, have seen lower capacity additions than
most of their peers in the last 10 years. ACC commissioned its last clinker plant in
Jamul, Chhattisgarh (2.79mtpa or 9,000tpd) in CY16. It also commissioned cement
grinding capacities of 1.1mtpa/1.35mtpa at Jamul/Sindri in CY16. Before this
expansion, it commissioned a 4.1mtpa (12,500 tpd) kiln at Wadi, Karnataka in Sep-10
and a 2.31mtpa (7,000 tpd) kiln at Chanda, Maharashtra, which commenced trial
production in Nov-10.
Between FY08-21, ACC grew its capacity at a CAGR of 4%, while most relevant peers
saw capacity growth of 8-17%. Besides the companies mentioned below, its relevant
markets saw the emergence of few other players - Wonder Cement, Nuvoco Vistas
(acquired plants of Lafarge Holcim in India and Emami Cements).
Exhibit 26: ACC’s capacity addition has been the slowest (4% CAGR) in the past 12-13
years amongst its peers…
18 16.5
16 14.5
14
12 10.3 10.1
9.2 9.4
10 8.0
(%)

8
6 4.0 4.2
4
2
0

JK Lakshmi
ACC

UltraTech

Shree Cement

Birla Corp
Dalmia Bharat
ACEM

JK Cement

Ramco Cements
Source: Company

…leading to lower volume growth and market share loss

Lower capacity additions restricted volume growth for ACC. Its sales volumes grew at
a CAGR of 2.8% between CY08-CY20 vs. the industry’s demand growth of 5.2% in the
same period. The company’s sales volume remained flat between CY11-CY16,
primarily due to higher capacity additions by its peers. This, in turn, led to an
estimated market share loss of 2.1pp between CY11-CY16 for the company.
However, between CY16-CY19, ACC’s volume increased at a CAGR of 7.9% vs. the
industry’s growth rate of 5%.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 133
01 September 2021 ACC
Exhibit 27: …which led to lower volume growth for the company Exhibit 28: …and its market share declining to 8% in CY20 from
vs. industry… 11.4% in CY08

20 12 11.4
10.6
15 9.9 10.1 9.8
10 9.3 9.0 8.6 8.3 8.7
10 8.2 8.0 8.0
8
5
(%)

(%)
6
0
4
-5

-10 2

-15 0
CY14

CY19
CY09

CY10

CY11

CY12

CY13

CY15

CY16

CY17

CY18

CY20

CY12

CY19
CY08

CY09

CY10

CY11

CY13

CY14

CY15

CY16

CY17

CY18

CY20
ACC Industry Market share

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Slower pace of capacity additions aided higher utilisation

Slow capacity additions have helped ACC to operate at a higher-than-industry
utilisation rate. Between CY10-CY21, its average grinding capacity utilisation was
10.6pp higher while its average clinker capacity utilisation was 6.6pp above the
industry.
Exhibit 29: Slow capacity addition ensured better utilisation of the existing assets vs.
industry
81.8

84.9

83.4
79.5
79.3
90
78.9
78.1

78.0

77.9

73.6
73.5

71.2
71.1

71.1
70.7

80
69.0

68.6

68.3

66.4
65.6
64.0

61.6
70
60
50
(%)

40
30
20
10
0
CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20

Capacity utilisation Industry utilisation

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 134
01 September 2021 ACC
Commissioning of Ametha, Madhya Pradesh plant to aid volume growth
ACC is increasing its clinker capacity by 2.7mtpa at Ametha, Madhya Pradesh and its
grinding capacity by 4.8mtpa in Madhya Pradesh and Uttar Pradesh. During CY21, it
has already increased its grinding capacity by 1.4mtpa at Sindri, Jharkhand. The
capex for this expansion is estimated at Rs 28.43bn which will be funded through
internal accruals. The expansion will improve the company’s sales in the Central and
East markets.
Exhibit 30: To arrest market share loss, ACC aims to expand its clinker/cement capacity
by 2.7/4.8mtpa by CY23-end
Location State Clinker (mtpa) Cement (mtpa) Timeline
Sindri Jharkhand 1.4 Q1CY21
Ametha Madhya Pradesh 2.7 1.0 Q2/Q3CY22
Tikaria Uttar Pradesh 1.6 Q2/Q3CY22
Shonebhadra Uttar Pradesh 2.2 CY23-end
Source: Company, Systematix Institutional Research

Volume growth opportunities are limited

We expect ACC’s capacity utilisation to reach 83% in CY22E. The on-going capacity
expansion should support volume growth of 6.2%/9.7% for the company in
CY22E/23E. However, it will have to plan for more expansion for future growth. ACC
had received Environmental Clearance for a 2.72mtpa clinker plant and 4.1mtpa
grinding plant along with 65MW thermal power plant and 10MW Waste Heat
Recovery System at Bilaspur, Chhattisgarh in the Eastern region; any development on
this project will strengthen its positioning in the Eastern region.
ACC has a clinker capacity of 20.7mtpa which will increase to 23.4mtpa by CY22E.
Post completion of the on-going capex, 24% of its clinker capacity will be in the
Central region vs. 14% currently. It has a grinding capacity of 34.5mtpa which will
increase to 39.3mtpa after the capex completion. Post the capacity expansion, 15%
of its grinding capacities will be in the North, 27% in the East, 23% in the Central
region, 10% in the West and 25% in the South.
Exhibit 31: Post the capex completion, ACC’s Central India exposure Exhibit 32: …capacity will increase to 23%/24% from 13%/14%
will get a boost as cement/clinker… currently

15%
17%
25%
28%

North North
East East
West West
27% Central 21% Central
South South

23%
24%
10%
10%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 135
01 September 2021 ACC
Cost-saving initiatives yielding results
ACC initiated an efficiency optimisation programme Project Parvat in 2019 to
transform the cost structure and improve the delivered cost to consumers. The
improvement in cost structure had to be achieved by unlocking efficiencies in
procurement and supply chain and reducing the distribution costs. The focus was to
increase the sales of premium products for achieving better margins. In CY20,
workshops and brainstorming sessions, assisted by an external consulting agency,
were conducted at all plants of the company across the country. The potential
savings from the identified initiatives were calculated and projected as monthly
targets. About 500 initiatives were implemented successfully in manufacturing alone
in CY20.
Under Project Parvat, ACC undertook several cost-saving initiatives like a)
renegotiation of warehouse rents, b) increase in direct dispatches of sales, c)
renegotiation of fuel/freight mix, d) planning of Waste Heat Recovery Systems at
Jamul and Kymore and e) better working capital management. The company believes
that this project led to cost savings of Rs 110/ton in CY20.
Exhibit 33: Total cost savings in excess of Rs 2.5bn or Rs 110/ton in CY20 through
initiatives like PARVAT

Source: Systematix Institutional Research, Company

ACC and Ambuja Cement launched a strategic supply chain project in partnership
with Blue Yonder – the world’s leading, end-to-end, digital supply chain platform
provider. The initiative was aimed at: a) generating a monthly demand plan based on
a forecast from the grassroots level, b) improving the capacity utilisation, c) EBITDA
maximisation by shifting volumes from low to high EBITDA markets, d) network
optimisation to improve services and boost secondary distribution cost and e)
framework to facilitate decisions related to future expansions. This initiative will
support EBITDA improvement by effectively using technology for capacity utilisation
improvement, shifting from low to high EBITDA markets and enabling cost
optimisation and improved customer services.
ACC also focused on digitalisation through the “Plants of tomorrow” initiative. It
implemented Technical Information Systems (TIS) that record minute-by-minute data
from all key assets at the plants. This initiative has helped the company improve
customer service and optimise costs.
The initiatives under Project Parvat will continue in CY21 and the company has set
further cost savings goals through a) improvement in operational efficiency of the
manufacturing and logistics network, b) higher sales of premium products and value-
added services for better margins and c) focus on profitable markets and segments.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 136
01 September 2021 ACC
Exhibit 34: ACC’s CY20 progress card and CY21 goals for improvement
Strategic Focus
Progress Made During The Year KPIs Goals For 2021
Area (SFA)
1) Upgraded existing facilities with 1) Leverage capacity for further value
contemporary technology & new 1) Capacity increase creation and to meet growing customer
Expanding &
processes. 2) Cost of expansion demand.
upgrading
capacities 2) Commissioned new 1.4mtpa cement 3) Average capital utilisation 2) Execution of Ametha and associated
grinding unit at Sindri, Jharkhand. grinding units.
1) Under Project Parvat, undertook cost-
saving projects like the renegotiation of
1) Improve operational efficiency of the
warehouse rents, increased direct 1) Earnings Before Interest and Taxes manufacturing & logistics network.
dispatches of sales and renegotiated (EBIT)
fuel/freight mix. 2) Focus on growing the premium
Enhancing 2) Free Cash Flow (FCF) product portfolio & value-added services
profitability 2) Investment in efficiency initiatives such
3) RoCE (VAS) to achieve better margins.
as Waste Heat Recovery Plants (WHRPs)
at Jamul and Kymore. 4) Cost measures 3) Focus on profitable markets and
segments.
3) Ensured healthy cash flows through
rigorous WC management.

1) Continued focus on talent 1) Focus on new product development to

1) Digital learning adoption rate
identification, succession planning. drive growth.
Reimagining 2) Embracing innovation and 2) Growth of RMC – VAP & services
business 2) Drive logistics excellence to achieve
sustainability.
proposition greater efficiencies.
3) Growth of low carbon & sustainable
3) ACC RMX introduced new low carbon
product portfolio
'ECOPact' product. 3) Enhance brand equity.

1) Committed to ESG actions and on track 1) Continue to build sustainable product

1) Percentage of sales from green
to achieve SD 2030 plan. portfolio.
products
Embedding ESG 2) Improved performance on climate, 2) Improve ESG rating & enhance
2) Percentage of operations powered by
principles across water etc. reputation.
WHRS & specific CO2 emissions intensity
areas of
3) Healthy progress made on the 3) Promote strong ESG & CSR principles.
operations 3) Thermal Substitution Rate (TSR)
decarbonisation roadmap.
4) Continue efforts towards achieving SD
4) CSR spend, beneficiaries
4) Increase in share of blended cement. 2030 plan.
Source: Company, Systematix Institutional Research

Commissioning of WHRS to improve the cost structure

ACC has a Waste Heat Recovery System (WHRS) of only 7.5MW at the Gagal,
Himachal Pradesh plant. It plans to commission a WHRS capacity of 22.5MW at two
locations, Jamul (Chhattisgarh) and Kymore (Madhya Pradesh), by CY22E.
The company has a renewable power capacity of 24.73MW, which includes 19MW
wind power plants in Rajasthan, Tamil Nadu, Maharashtra and solar power plants of
5.73MW. It also has arrangements for a 14.1MW solar power plant at its Tikaria,
Uttar Pradesh plant. In CY20, its plants at Thondebhavi and Kudithini in Karnataka
sourced ~60% of the plants’ power requirement from renewable sources.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 137
01 September 2021 ACC
Exhibit 35: ACC plans to add a total 22.5MW of WHRS in Exhibit 36: …taking the renewable power capacity to +50MW
chhattisgarh and MP plants… including WHRS units

Plants State MW Plants State MW

Gagal Himachal Pradesh 7.5
Current capacity 7.5 Wind Power plants Rajasthan, Tamil Nadu, Maharashtra 19.0

Jamul Chhattisgarh 11.0 Solar Power plants Chhattisgarh & Madhya Pradesh 5.7
Kymore Madhya Pradesh 11.5
Current capacity 24.7
Planned 22.5

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

During CY20, ACC’s captive wind farms generated 32.3mn units of renewable energy
while solar power plants generated 2.49mn units of power. Additionally, the
company consumed 49mn units of solar power and 5mn units of wind power
through Power Purchase Agreement. WHRS at Gagal Cement Works generated
~47mn units of electrical energy during the year.
Green energy (including WHRS) contributed to 6.0% of total power consumption in
CY20 vs. 6.9% in CY19. Green energy (including WHRS) contributed to 4.3% of total
power production in CY20 vs. 4.1% in CY19. We estimate renewable sources to
contribute to 8.4% of total electricity generation and 9.7% of total electricity
consumption by CY23E. Higher power generation through WHRS may lead to
incremental cost savings of ~Rs 15/ton by CY23E.
Exhibit 37: Expect WHRS to contribute to 6.3% of electricity Exhibit 38: …leading to incremental cost savings of Rs 15/ton
consumption by CY23E… by CY23E
7 6.6
6.3 6.3 30
6 24.1
25 23.0
5 4.4
20
4 3.7 3.7 3.6
(Rs/ton)

3.4 3.4
(%)

15
3 2.5 2.5 2.3
9.3 9.3 8.9
10
2

1 5

0 0
CY18 CY19 CY20 CY21E CY22E CY23E CY19 CY20 CY21E CY22E CY23E

Solar+Wind power WHRS Savings through WHRS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 138
01 September 2021 ACC
Exhibit 39: ACC plans to reduce CO2 emission levels by 19% from the current levels

600

(kg/ton of cementitious material)

545
550 533 525
506 512
493
500

450
400
400

350

300
CY15 CY16 CY17 CY18 CY19 CY20 CY30E
CO2 emissions

Source: Systematix Institutional Research, Company

ACC has also undertaken other initiatives like: a) rationalisation of employee costs, b)
lower consumption of energy, c) higher share of premium products and d) higher
thermal substitution. The total number of employees reduced between CY14-CY20,
pulling down employee cost/ton (increase in CY20 was due to lower production
volumes). The sales volume of premium products grew at a CAGR of 17% over CY14-
CY20. Electricity consumption/ton of cement declined to 80.65 units in CY20 vs.
84.45 units in CY15. Thermal substitution improved to 6.93% vs. 3.2% in CY16. The
kiln heat rate remained flat over CY17-CY20.
Exhibit 40: Employee base declined at a CAGR of 5.6%, pulling Exhibit 41: Premium products share more than doubled to ~21% in
down unit staff cost CY20 from 9.7% five years back

10,000 340
328 329 6 36.0 40
9,000 325 330
8,000 35
5
312 320
7,000 308 27.0 30
6,000 310 4
(Rs/ton)

299 25
(Units)

(mn tons)

5,000 300 20.0

(%)
286 3 20
4,000 290
3,000 11.0 15
280 2 9.5
2,000 10
9071

8368

7833

7422

6731

6643

6401

1,000 270
1 3.0 5
0 260
CY14 CY15 CY16 CY17 CY18 CY19 CY20 0 0
CY15 CY16 CY17 CY18 CY19 CY20
No. of employees Employee cost/ton Sales volume of premium products YoY growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 139
01 September 2021 ACC
Exhibit 42: Focus on plant efficiency since CY16 has led to Exhibit 43: …however kiln heat rate remained range-bound
a reduction in the unit electricity consumption…
90 88.66 750 748 748
88
745

(kcal/ton of clinker)
742 742
86 741
84.45 84.33
740
(kwh/ton)

84
82 81.13 80.65 735
79.63
80 730
730
78
76 725

74 720
CY15 CY16 CY17 CY18 CY19 CY20 CY15 CY16 CY17 CY18 CY19 CY20
Electricity consumption (kwh/ton) Kiln Heat Rate

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 44: Thrust on renewable energy has led to higher Exhibit 45: ACC’s increasing share of premium/blended products
thermal substitution rate has led to a lower clinker factor
8 67
6.93 66
7 66
65
6 5.54
64
63
5 4.47 63
4 62
(%)

(%)

4 62
3.2 61
3 61
60
60
2
59
1 58
0 57
CY16 CY17 CY18 CY19 CY20 CY16 CY17 CY18 CY19 CY20

Thermal substitution (%) Clinker factor (%)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Benefits of Master Supply Agreement getting reflected

In the May’17 board meeting, ACC and ACEM decided to set up a special committee
of directors to consider the merger of the two companies. However, this proposal
was called off later given the challenges of limestone mines transfer across 19 states.
In CY18, ACC and ACEM signed a Master Supply Agreement (MSA) to unlock benefits
from a) procurement of clinker, cement, raw material and spare parts and b)
undertaking toll grinding in certain parts.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 140
01 September 2021 ACC
Exhibit 46: Pricing arrangement for the master supply agreement signed between ACC & Ambuja
Material/Service Pricing formula
Manufacturing company’s Average Net Selling Price minus 5% discount, applied in the following manner: (a) In
case of ‘FOR Delivery’, the Average Net Selling Price applicable for such FOR Deliveries in the relevant district;
(b) In case of ‘Ex-Delivery’, the Average Net Selling Price applicable for such Ex-Deliveries in the relevant district
Cement
Delivery point: (a) “FOR Delivery”: delivered at buying company’s dealer, retailer, or consumer site, as the case
may be; or (b) “Ex-Delivery”: delivered at the manufacturing plant or dispatching railway yard, as the case may
be.

For each tonne, (A) + (B), where: (A) = Conversion charges determined at 8% of the Gross Fixed Assets Block;
Toll Grinding and (B) = Manufacturing plant’s variable cost per tonne of the previous quarter, plus 10% mark-up Delivery
point: At the manufacturing plant.

Price will be one of the following: (a) Ex-works market price; or (b) Ex-works market price determined by an
independent agency appointed by Board of Directors of both, Ambuja and ACC; or (c) Manufacturing plant’s
Clinker
clinker variable cost of the previous quarter, plus 35% mark-up. The above hierarchy of methods will be
followed for arriving at the price of clinker. Delivery point: At the manufacturing plant

Price will be one of the following: (a) Replacement cost thereof at manufacturing company’s location based on
market price; or (b) Manufacturing company’s landed cost thereof plus carrying cost of 8% per annum for the
Raw materials and Stores & Spares
holding period The above hierarchy of methods will be followed for arriving at the price of raw material and
spare parts. Delivery point: At manufacturing company’s location.
Source: Company, Systematix Institutional Research

The benefits of the MSA are being realized through: 1) Clinker transfer from ACC’s
Lakheri (Rajasthan) plant to Dadri (Uttar Pradesh) grinding unit of ACEM which
earlier was being catered from Rabriyawas (Rajasthan) ACEM’s plant; 2) clinker
transfer from ACC’s Bargarh (Odisha) or Chaibasa (Jharkhand) plants to Farakka
(West Bengal) and Sankrail (West Bengal) grinding units of ACEM. ACC had been
servicing the Delhi market also from Lakheri earlier. Post MSA, ACEM’s Roorkee
(Uttarakhand) plant is being used to service the Delhi market of both ACC and ACEM.
The management had guided PBT improvement of 3-5% for both companies due to
MSA.
Exhibit 47: Under the MSA, both companies can leverage on each other’s capacity/infrastructure for mutual benefit, leading to 3-5%
savings on PBT levels

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 141
01 September 2021 ACC
In CY20, there was an increase of 5.3x YoY in goods purchased (Rs 5.05bn from Rs
954mn) from ACEM and a rise of 2.1x YoY in goods sold (Rs 2.2bn from Rs 1.05bn) to
ACEM. As per the management, Rs 2.5bn of cumulative savings were achieved by
ACC and ACEM in CY20 due to the MSA. Benefits for ACC were less than 5% of PBT.
Exhibit 48: Sale of goods to ACEM increased ~2.1x YoY in CY20… Exhibit 49: …purchase of goods increased ~5.3x YoY to Rs 5bn in
CY20 viz. 3.8% of revenues
2,500
2220 6,000 5
5050
2,000 5,000
4
3.7
1,500 4,000
(Rs mn)

(Rs mn)
1045

(%)
3,000
1,000
2
2,000
500 262 954 1
1,000
0.6
0 121
0.1
CY18 CY19 CY20 0 0
CY18 CY19 CY20
Sale of goods to Ambuja Purchase of goods from Ambuja % of revenues

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 142
01 September 2021 ACC

Financial Highlights
We expect ACC to report revenue CAGR of 12.6% during CY20-CY23E, primarily led by
a 10.1% CAGR in cement sales volumes. We expect capacity utilization to be at
84%/83%/86% in CY21/22/23E vs. 83.4% in CY19 (71.2% in CY20). Its RMC revenues
are expected to grow at a 15.2% CAGR – RMC revenue share is estimated to increase
to 7.5% from 6.9% currently. ACC’s volumes declined 11.6% YoY in CY20 but we
expect a 14.5% YoY growth in CY21 led by the commissioning of the 1.4mtpa
Jharkhand plant and infrastructure demand picking-up in South India. Further, we
estimate cement realisation to grow at a 2.3% CAGR during CY20-CY23E.
Exhibit 50: ACC to report ~12.6% revenue CAGR during CY20-CY23E… Exhibit 51: …led by strong cement volume growth of 10.1%
220 25%
20
197 20%
200
15 14.5
176 15% 14.0
180
162 10% 10 9.7
157
160 8.2 6.2
(Rs bn)

148 3.7 4.0

138 5% 5 2.4 2.9 2.8 2.0 2.0
140 133

(%)
0% 1.8
0
120
-5% CY17 CY18 CY19 CY20 CY21E CY22E CY23E
-5
100 -10%
80 -15% -10
(11.6)
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
-15
Total Sales % YoY Growth (RHS) % Cement volume Growth % Cement NSR Growth

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

On the ready mix concrete (RMC) business front, we expect it to achieve pre-COVID
revenues by CY23E. EBITDA margin of RMC declined to 2.4% in CY20 vs. 6.4% in CY19
due to a 35% YoY drop in revenues. We estimate RMC revenues to grow at a 15.2%
CAGR during CY20-CY23E to Rs 14.5bn, largely driven by 12.5% volume growth.
Exhibit 52: Expect RMC business sales to return to pre-COVID Exhibit 53: RMC contribution to overall EBITDA dipped to 2.4% in
levels only in CY24E CY20
16 30% 1,800 12
15 15 1,600
15
20% 10
14 13 1,400
13 13 10%
12 1,200 8
12 11 0%
(Rs mn)
(Rs bn)

1,000

(%)
11 6
10 -10% 800
10
9 600 4
-20%
8 400
-30% 2
7 200
6 -40% 0 0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY16 CY17 CY18 CY19 CY20
RMC sales % YoY Growth (RHS) EBITDA (Rs mn) OPM (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

ACC’s operating profit is expected to grow at a CAGR of 16.3% during CY20-CY23E led
by 1) operating leverage from the sweating of existing assets (13-year high utilisation
expected in CY21), 2) installation of 22.5MW WHRS plants in the medium-term
leading to incremental cost savings of Rs 15/ton in CY23E, 3) continued focus on
reducing cost through initiatives like ‘Project PARVAT’ which yielded Rs 110/ton
savings in CY20 and 4) better synergies on operating costs/sales volumes through the

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 143
01 September 2021 ACC
Master Supply Agreement with ACEM. We expect a profit CAGR of 18.9% during
CY20-CY23E.
Exhibit 54: Estimate EBITDA CAGR of 16.3% … Exhibit 55: …and PAT CAGR of 18.9% over CY20-23E
45 22% 30 40%

40 20% 35%
25
35 30%
18%
20 25%
30
(Rs bn)

(Rs bn)
16% 20%
25
15 15%
14%
20
10%
12% 10
15 5%
19 21 24 25 31 34 39 9 11 14 15 20 21 25
10 10% 5 0%
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E

EBITDA EBITDA margin (%) (RHS) PAT % YoY Growth (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

We expect EBITDA margin to expand 118bps YoY in CY21 led by a 2.3% rise in NSR
despite hardening fuel costs and soft demand (2nd COVID wave) in 2QCY21. The
overall stable pricing scenario coupled with higher volumes from the Jharkhand plant
should support the margins and cushion them from cost headwinds (pet coke price is
up ~75% in the last one year whereas imported coal price has increased +30%). As
per the latest annual report, ACC derives 93% of its energy requirements (kilns) from
coal and pet coke. We expect EBITDA margins to improve to 19.2%/19.8% in
CY22E/CY23E owing to higher volumes, easing of the cost headwinds and a stable
pricing scenario.
Consequently, we expect unit EBITDA to increase to Rs 1,145 in CY23E from Rs
972/ton in CY20. EBIT and PAT margins are expected to be at 16-17% and 12-13%,
respectively.
Exhibit 56: Margins to sustain at higher levels… Exhibit 57: Improvement in EBITDA/ton over CY17-20
25% 1,200 1,145
1,091
1,100 1,065
20%
1,000 972
15%
(Rs/ton)

900 834
(%)

10% 800 746

728
700
5%
600
0% 500
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E
EBITDA margin (%) EBIT margin (%) PAT margin (%) Unit EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

We estimate ACC’s free cash flow (FCF) to dip to Rs 11bn (25% lower YoY) in CY21 led
by 1) increase in working capital requirements and 2) higher capex of Rs 10.5bn in
CY21E vs. Rs 7.45bn in CY20. The operating cash flow (OCF) of the company is
expected to grow at a CAGR of 14.5% over CY20-CY23E which will lead to FCF of Rs
42.9bn despite our capex assumption of Rs 39.5bn.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 144
01 September 2021 ACC
Exhibit 58: Higher cash generation should help fund future capex through internal
accruals

40 25
33
30 28
22 22 19 20
22
20 18
16
11 15 15

(Rs bn)

(Rs bn)
10 13
10 11 10
0
6
-5 -5 -5 5
-10 -7
-11
-20 -15 -14 0
CY17 CY18 CY19 CY20 CY21E CY22E CY23E

CFO Capex FCFF (RHS)

Source: Company, Systematix Institutional Research

To complete its expansion program, ACC adopted a conservative dividend policy for
the past three years -- dividend per share was flat at Rs 14 from CY18 to CY20. As the
capex program is pending, we expect dividend pay-out to be in the range of 13-14%
till CY23E. Lower dividend pay-out and robust FCF generation suggest ACC might
conserve cash for future expansion.
Exhibit 59: Expect conservative dividend in the coming years Exhibit 60: Payout has been flat in the past 3 years
6 5.5 1.2% 40 74% 80%
35 64% 70%
5 1.0%
30 53% 60%
3.7 3.8
4 3.6 0.8% 46% 46%
3.3 3.4 25 43% 50%
(Rs/share)
(Rs bn)

3 2.6 0.6% 20 34% 40%

15 24% 30%
2 0.4% 19% 18%
10 20%
1 0.2%
5 10%
28 30 30 34 17 17 26 14 14 14
0 0.0% 0 0%
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20

Dividend outflow (incl. tax) Dividend Yield (%) (RHS) DPS Dividend Payout (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

We expect ACC’s Return on equity (RoE) to improve gradually to 14.4% in CY23E from
12.1% in CY20 led by an improvement in margins (EBIT margin is expected to
improve to 17% by CY23E vs. 14.8% in CY20.
Exhibit 61: Du-pont analysis
Particulars CY17 CY18 CY19 CY20 CY21E CY22E CY23E
PAT/PBT 70.5% 68.8% 66.9% 73.8% 74.8% 74.8% 74.8%
PBT/EBIT 92.7% 94.6% 95.9% 97.2% 98.6% 98.4% 98.3%
EBIT/Sales 10.5% 11.2% 13.5% 14.8% 16.4% 16.5% 17.0%
Asset turnover (x) 1.4 1.4 1.3 1.1 1.2 1.1 1.1
Assets/Equity (x) 1.1 1.1 1.1 1.0 1.0 1.0 1.0
ROE (%) 10.1 10.8 12.3 12.1 14.6 14.1 14.4
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 145
01 September 2021 ACC
RoCE is expected to improve to 19.2% in CY21E from 16.2% in CY20 with the
improvement in operating margins. We expect a RoCE of 18.7%/19.2% in
CY22E/CY23E. Higher capacity utilisation, tight working capital management and
better operating profits should result in RoIC improving to 39.7% in CY23E vs. 26.2%
in CY20.
We estimate ACC’s net cash levels to improve to Rs 94.9bn in CY23E from Rs 57.4bn
in CY20, placing it in a comfortable position to pursue future growth opportunities.
Exhibit 62: See continued improvement in the balance sheet Exhibit 63: Return ratios are expected to improve further
100 94.9 0.0
45%
90
77.6 -0.1 40%
80
66.8 35%
70
57.3 -0.2
60 30%
(Rs bn)

25%

(x)
50 43.8 -0.3

(%)
40 20%
28.4 -0.4
30 24.7 15%
20 10%
-0.5
10 5%
0 -0.6
0%
CY17 CY18 CY19 CY20 CY21E CY22E CY23E CY17 CY18 CY19 CY20 CY21E CY22E CY23E
Net Cash Net Debt: Equity (RHS) RoE RoCE RoIC

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 146
01 September 2021 ACC

Cash flow analysis & corporate governance

FCF generation: ACC generated cumulative FCF of ~Rs 58bn between CY16-CY20.
FCF utilisation: Of the total FCF generation of Rs 58bn, it paid ~29% of the amount
(~Rs 17bn) towards dividend (including dividend tax) over the past 5 years. Liquid
assets of the company have increased by Rs39.6bn in last 5 years (69% of FCF).
FCF expectation: We expect FCF to decline to Rs 11bn in CY21E due to capex
requirements for expansion projects in Ametha & Tikaria – Rs 10.5bn/Rs 15bn in
CY21E/CY22E. FCF is expected to improve to Rs 12.6bn/Rs 19.3bn in CY22/CY23E.
Earnings quality: During the last 10 years, ACEM has earned a cumulative PAT of ~Rs
116bn against which it generated OCF of Rs 155bn (1.34x profits).
Exhibit 64: FCF to dip in CY21 and remain moderate in CY22 owing Exhibit 65: Earnings quality reflects in cumulative OCF; OCF has
to capex in Central India been more than PAT in the past 10 years
25 5.0 180 150
4.5 160
20 4.0 145
140
3.5
120 140
15 3.0
(Rs bn)

(Rs bn)
100
(%)

2.5

(%)
135
10 2.0 80
1.5 60 130
5 1.0 40
125
0.5 20
0 -
- 120
CY17 CY18 CY19 CY20 CY21E CY22E CY23E
3Yrs 5Yrs 10Yrs
Free Cash flow FCF Yield (%)-- RHS Cumulative PAT Cumulative OCF Cumulative OCF as % Cum. PAT--RHS

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 66: Contingent liabilities

Contingent liabilities (Rs mn) CY16 CY17 CY18 CY19 CY20
Demand from Competition Commission of India 12,288 13,667 15,044 16,194 17,499
Others 3,149 2,151 7,907 10,154 10,249
Total 15,437 15,818 22,950 26,348 27,748
% of networth 17% 17% 22% 23% 22%
Source: Company, Systematix Institutional Research

Exhibit 67: Director and KMPs renumeration & pledging details

Other key monitorables CY16 CY17 CY18 CY19 CY20
Remuneration to Directors & KMPs (Rs mn) 143 125 152 141 202
% of PBT 1.6% 1.0% 1.0% 0.7% 1.0%
Auditor's remuneration (Rs mn) 45 25 35 33 32
% of PBT 0.5% 0.2% 0.2% 0.2% 0.2%
Pledged shares (%) - - - - -
Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 147
01 September 2021 ACC

Systematix vs. Consensus

Our revenue/EBITDA estimates are largely in-line with the Bloomberg consensus for
CY21E and CY22E. Our revenue/EBITDA estimate is 3%/6% above consensus in
CY23E. In terms of operating margins, we expect ACC to derive cost savings from 1)
operating leverage from the sweating of existing assets (13-year high utilisation
expected in CY21), 2) installation of 22.5MW WHRS plants in the medium-term
leading to incremental cost savings of Rs 15/ton in CY23E, 3) cost savings through
initiatives like ‘Project PARVAT’ which yielded Rs 110/ton savings in CY20 and 4)
higher transaction value under the Master Supply Agreement leading to better
synergies on operating costs.
Exhibit 68: ACC- Standalone - Bloomberg vs. our estimates
Particulars CY21E CY22E CY23E
Revenues (Rs bn)
Consensus 164 176 191
Systematix est. 162 176 197
% Difference -1% 0% 3%
EBITDA (Rs bn)
Consensus 31 34 37
Systematix est. 31 34 39
% Difference -1% 0% 6%
EBITDA Margin (%)
Consensus 19.1% 19.3% 19.2%
Systematix est. 19.2% 19.2% 19.8%
Difference (bps) 4 (7) 59
Source: Bloomberg, Systematix Institutional Research

Exhibit 69: Key Assumptions

Particulars CY18 CY19 CY20 CY21E CY22E CY23E
Sales volume (mt) 28.4 28.9 25.5 29.2 31.0 34.1
Cement Realization (Rs/ton) 4,597 4,709 4,843 4,979 5,078 5,180
Per ton costs (Rs)
Raw material 791 817 711 733 757 782
Purchase of goods 31 125 273 250 248 237
Employee cost 286 299 329 304 304 293
Power & Fuel 1,057 1,084 1,008 1,080 1,116 1,141
Freight 1,414 1,402 1,344 1,366 1,396 1,427
Other expense 892 859 763 755 770 760
Total Cost 4,472 4,585 4,428 4,490 4,590 4,641
EBITDA/ton 746 834 972 1,065 1,091 1,145
Source: Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 148
01 September 2021 ACC

Key downside risks

1) Further delay in the commissioning of pending capex: As per initial guidance,
the 6.2/2.7mtpa cement/clinker expansion programmes were to be completed
by CY21-end. The delay in commissioning was likely due to COVID-19-induced
slower mobilisation of labour and goods. We estimate capex plans to get
completed by CY23E; any delay in commissioning will lead to lower-than-
estimated sales volumes.
2) Inflationary pressures in fuel costs: There has been a sharp increase in the
prices of pet coke, coal and diesel in the last few months. The price of pet coke is
up ~75% over the last year while imported coal price has increased 30%+.
Current pet coke prices are up ~40% vs. 4QFY21 consumption price. Though
cement companies are trying to control energy costs by changing their fuel mix
(lower usage of pet coke and Australian coal), continued escalation in coal/pet
coke prices could impact our earnings estimate if the industry is unable to pass
on the cost increases to consumers.
3) Prolonged pandemic-related restrictions/lockdowns: We estimate ACC to
report 14.5% volume growth in CY21E; however, continued localised lockdowns
could act as a downside risk to our estimates. Besides hurting demand,
lockdowns/restrictions impact the mobilisation of labour at construction sites
and delay the process. However, we derive confidence from the vaccination pace
in India and believe economic recovery and normalcy will be attained from
2HCY21E onwards.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 149
01 September 2021 ACC

Valuation and View

Both LafargeHolcim Group companies in India, ACC and ACEM, have seen slower
capacity additions than most peers in the last 13 years. Between FY08-FY21, ACC’s
capacity grew at a CAGR of 4% whereas most of its relevant peers saw capacity
growth of 8-17% in the same period. ACC commissioned its last clinker plant in
Jamul, Chhattisgarh (2.79mtpa or 9,000tpd) in CY16. It also commissioned cement
grinding capacities of 1.1mtpa/1.35mtpa at Jamul, Chhattisgarh/Sindri, Jharkhand in
CY16. Before this expansion, it had commissioned a 4.1mtpa (12,500 tpd) kiln at
Wadi, Karnataka in Sep-10 and 2.31mtpa (7,000 tpd) kiln at Chanda, Maharashtra,
which had commenced trial production in Nov-10.
ACC is increasing its clinker capacity by 2.7mtpa at Ametha, Madhya Pradesh and
grinding capacity by 4.8mtpa in Madhya Pradesh and Uttar Pradesh. During CY21, it
increased its grinding capacity by 1.4mtpa at Sindri, Jharkhand.
Capacity additions and cost-saving initiatives (commissioning of WHRS/solar power
plants, benefits from MSA with ACEM) should drive EBITDA/profits CAGR of
16.3%/18.9% over CY20-CY23E. The management believes that Project Parvat led to
cost savings of Rs 110/ton, while benefits from MSA with ACEM were ~5% of PBT in
CY20.
Improvement in profitability and release of working capital (cumulative reduction of
Rs 6.5bn in CY19/20) led to an improvement in OCF and FCF in the last few years.
OCF and FCF increased at a CAGR of 41% and 54%, respectively, between CY18-CY20.
We expect ACC to generate OCF of Rs 82.4bn over CY21-CY23E, which should help in
funding its future capex through internal accruals. We expect FCF generation of Rs
42.9bn over CY21-CY23E.
ACC’s RoE improved to 12.1% in CY20 vs. 10.1% in CY17 due to strong improvement
in profits and release of working capital. We expect RoE to be at 14-15% over CY21-
CY23E. RoCE is expected to improve to 19.2% in CY23E from 16.2% in CY20 with an
improvement in margins. ACC has historically been a cash positive company and we
estimate net cash of Rs 94.9bn in CY23E vs. Rs 57.4bn in CY20.
ACC trades at 12.4x/11.1x/9.2x CY21/22E/23E EV/EBITDA and USD 152/138/124
CY21/22E/23E EV/ton. The stock has traded at an average EV/EBITDA of 10.8x in the
last 14 years. Going forward, with the improvement in profitability and stable return
ratios, we expect ACC to trade at its historical valuations. We value it at 12x CY23E
EV/EBITDA to arrive at a price target of Rs 2,995, an upside of 24% from the CMP. We
initiate coverage on the stock with a BUY rating. At our TP, the stock will trade at
14.3x/12x CY22E/23E EV/EBITDA and USD 178/162 CY22E/23E EV/ton.
Exhibit 70: 1-year forward EV/EBITDA Exhibit 71: 1-year forward EV/ton
20.0
180

160
15.0
140
(US$/ton)

10.0 120
(x)

100
5.0 80

60
0.0
40
Aug-11

Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-14

Aug-20
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 150
01 September 2021 ACC

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E
Net Sales 156,567 137,845 162,378 176,376 197,023 Equity share capital 1,880 1,880 1,880 1,880 1,880
Growth (%) 5.8 (12.0) 17.8 8.6 11.7 Reserves & surplus 113,333 124,735 141,042 158,870 179,738
Total Expenditure 132,472 113,035 131,241 142,498 158,045 Shareholders Funds 115,213 126,614 142,922 160,750 181,618
EBIDTA 24,095 24,811 31,137 33,877 38,978 Loan Funds - - - - -
Growth (%) 13.9 3.0 25.5 8.8 15.1 Net Deferred Taxes 6,422 3,762 3,762 3,762 3,762
EBIDTA % 15.4 18.0 19.2 19.2 19.8 Total Liabilities 121,635 130,376 146,684 164,512 185,380
Depreciation 6,030 6,353 6,601 7,045 7,801 Net block 70,018 66,615 68,467 68,422 85,121
EBIT 18,065 18,458 24,535 26,833 31,177 Capital WIP 4,353 5,453 7,500 15,500 5,000
EBIT Margin (%) 11.5 13.4 15.1 15.2 15.8 Investment 2,302 2,206 2,206 2,206 2,206
Other income 3,112 2,000 2,152 2,270 2,395 Current Assets 94,148 106,985 118,618 131,871 151,429
Interest 862 570 381 465 569 Inventories 11,410 9,005 10,282 11,601 12,788
EBT 20,315 19,888 26,306 28,638 33,003 Sundry Debtors 6,284 4,515 4,935 5,569 6,138
Tax 6,726 5,215 6,629 7,217 8,317 Cash and Bank 43,832 57,349 66,786 77,586 94,887
Effective tax rate (%) 33.1 26.2 25.2 25.2 25.2 Loans and Advances 20,334 14,887 15,387 15,887 16,387
Adjusted PAT 13,589 14,673 19,677 21,421 24,686 Other current assets 12,288 21,229 21,229 21,229 21,229
Growth (%) 26.2 8.0 34.1 8.9 15.2 Current Liab & Prov 49,186 50,883 50,107 53,487 58,376
Net Margin (%) 8.7 10.6 12.1 12.1 12.5 Net current assets 44,962 56,102 68,511 78,384 93,053
Reported PAT 13,589 14,149 19,677 21,421 24,686 Total Assets 121,635 130,376 146,684 164,512 185,380
Growth (%) (9.8) 4.1 39.1 8.9 15.2 Source: Company, Systematix Institutional Research
Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) CY19 CY20 CY21E CY22E CY23E YE: Mar CY19 CY20 CY21E CY22E CY23E
PBT (Ex-Other income) 20,315 16,878 24,154 26,368 30,608 Profitability (%)
Depreciation 6,030 6,353 6,601 7,045 7,801 EBITDA Margin 15.4 18.0 19.2 19.2 19.8
Interest Provided (1,805) (1,257) 381 465 569 Net Margin 8.7 10.6 12.1 12.1 12.5
Other Non-Cash items (254) 3,374 - - - ROCE 18.1 16.2 19.3 18.7 19.2
Chg in working cap 2,661 3,872 (2,972) 927 2,632 ROE 12.3 12.1 14.6 14.1 14.4
Tax paid (4,462) (7,064) (6,629) (7,217) (8,317) RoIC 23.6 26.2 35.1 37.3 39.7
Operating Cashflow 22,484 22,156 21,535 27,588 33,293 Per Share Data (Rs)
Capital expenditure (4,935) (7,452) (10,500) (15,000) (14,000) EPS 72.3 78.0 104.7 113.9 131.3
Free Cash Flow 17,549 14,704 11,035 12,588 19,293 CEPS 104.4 109.1 139.8 151.4 172.8
Other income 1,608 2,125 2,152 2,270 2,395 BVPS 612.9 673.5 760.3 855.1 966.1
Investments 43 (39) - - - DPS 14.0 14.0 15.0 16.0 17.0
Investing Cashflow (3,283) (5,366) (8,348) (12,730) (11,605) Valuations (x)
Equity Capital Raised - - - - - PER 33.4 30.9 23.1 21.2 18.4
Loans Taken / (Repaid) - - - - - P/CEPS 23.1 22.1 17.3 15.9 14.0
Interest Paid (572) (399) (381) (465) (569) P/BV 3.9 3.6 3.2 2.8 2.5
Dividend paid (incl tax) (3,169) (2,629) (3,369) (3,594) (3,818) EV / Sales 2.6 2.9 2.4 2.1 1.8
Income from investments - - - - - EV / EBITDA 17.0 16.0 12.4 11.1 9.2
Others - (246) - - - Dividend Yield (%) 0.6 0.6 0.6 0.7 0.7
Financing Cashflow (3,742) (3,274) (3,750) (4,058) (4,387) Gearing Ratio (x)
Net chg in cash 15,459 13,516 9,437 10,800 17,301 Net Debt/ Equity -0.4 -0.5 -0.5 -0.5 -0.5
Opening cash position 28,373 43,833 57,349 66,786 77,586 Net Debt/EBIDTA -1.8 -2.3 -2.1 -2.3 -2.4
Closing cash position 43,832 57,349 66,786 77,586 94,887 Working Cap Cycle (days) -61.1 -78.5 -71.0 -66.0 -66.0
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 151
 Systematix
Institutional Equities

Dalmia Bharat 01 September 2021

Ambitious growth targets; aims to improve shareholder returns

INITIATING COVERAGE Dalmia Bharat (DALBHARA) has announced its capital allocation policy, providing a
Sector: Cement Rating: BUY roadmap to achieve 110-130mtpa capacity by 2031 in phases a) 48.5mtpa grinding
capacity by FY24E and b) 60mtpa capacity in the next 4-5 years (detailed plan to be
CMP: Rs 2,200 Target Price: Rs 2,615
announced in 9-12 months). The company has historically focused on capacity growth
through the organic and inorganic routes. It aims to become a pan-India player with a
Stock Info
Sensex/Nifty 57,552/17,132
significant presence in all markets. Further, the management has highlighted that 10%
Bloomberg DALBHARA IN of operating cash flows will be returned to shareholders through equity buy-backs and
Equity shares 187mn dividends. The reduction in leverage over the last few years (net debt/EBITDA
52-wk High/Low Rs 2,404/652 improved to 0.04x in FY21 from 3.7x in FY16) addresses past investor concerns over the
Face value Rs 2 high debt levels. The company’s return ratios have improved (RoE of 7.9% in FY21 vs.
M-Cap Rs 412bn/ USD 5.6bn 2.1% in FY20) and we expect a further improvement to 12.6% by FY24E. We expect its
3-m Avg volume USD 6.33mn EBITDA/adjusted PAT to grow at a CAGR of 13.4%/30.8% over FY21-24E and value the
company at 13.5x FY23E EV/EBITDA (adjusted for CWIP) to arrive at a target price of Rs
Financial Snapshot (Rs mn) 2,615, an upside of 19% from the CMP.
Y/E March FY22E FY23E FY24E
Focus on capacity expansion to continue
Sales 118 133 154
EBITDA 30 34 41  DALBHARA has increased its capacity from 1.2mtpa in FY06 to 30.75mtpa in FY21 through
PAT 12 15 21 the organic and inorganic routes. It was in the process of increasing its grinding capacity
EPS (Rs) 63 79 109 by 7.75mtpa in the Eastern region apart from the completion of the acquisition of Murli
PE (x) 35 28 20 Industries (3mtpa capacity in the Western region). It recently announced further capacity
EV/EBITDA (x) 14.4 12.6 10.7 expansion plans of 9.9mtpa, which would help in increasing its grinding capacity to
RoE (%) 8.9 10.2 12.6 48.5mtpa by FY24E. We expect a sales volume CAGR of 12% over FY21-24E.
RoCE (%) 6.8 7.7 9.7
Dividend yield (%) 0.1 0.1 0.1 Aims to increase capacity by ~4x and become a pan-India player

Shareholding pattern (%)  In its recently announced capital allocation policy, the company has indicated its plans to
Jun-21 Mar-21 Dec-20 become a 110-130mtpa capacity company by 2031 without stretching its balance sheet
(target net debt/EBITDA to be maintained below 2x and deviation will be exceptional for
Promoter 56 56 56
large inorganic opportunities). It plans to become a pan-India player as against having a
–Pledged - - -
large presence only in the Southern, Eastern and North Eastern markets historically.
FII 13 13 14
DII 6 5 4 Improvement in its balance sheet, focus on cost efficiencies
Others 25 26 26
 The company has consistently improved its leverage since FY15; net debt reduced to Rs
Stock Performance (1-year) 1.2bn in FY21 from Rs 66.3bn in FY15. Net debt/EBITDA improved to 0.04x in FY21 vs.
2500
3.7x in FY16 and we expect it to rise marginally to 0.32x/0.27x in FY23/24E. The net D/E
2000
of the company improved to 0.01x in FY21 vs. 1.3x in FY16 and we expect it to remain
1500
muted at 0.07x/0.06x in FY23/24E. The variable cost/ton remained under control in
1000
FY20/21 and we expect further cost savings of Rs 50/ton after the commissioning of its
Waste Heat Recovery Systems and Solar Power plants.
500

0 Expect EBITDA CAGR of 13.4% over FY21-24E; initiate coverage with a BUY rating
Jan-21

Jul-21
Aug-20

Sep-20

Nov-20

Feb-21
Mar-21

Apr-21

Jun-21

Aug-21
Oct-20

Dec-20

May-21

We expect an EBITDA CAGR of 13.4% over FY21-24E led by higher sales

Dalmia Sensex
volume/realisation while its RoE should improve to 12.6% by FY24E vs. 7.9% in FY21. The
stock trades at 14.4x/12.6x/10.7x FY22/23/24E EV/EBITDA and USD 160/164/122
Sanjeev Kumar Singh FY22/23/24E EV/ton. We value DALBHARA at 13.5x FY23E EV/EBITDA (adjusted for CWIP
sanjeevsingh@[Link] as capacity expansion will get completed in FY24E) considering the improvement in
+91 22 6704 8017
profits, return ratios and its intention to improve shareholder returns. We initiate
Rahul Jain coverage on the stock with a BUY rating and a target price of Rs 2,615, an upside of 19%
rahuljain@[Link] from the CMP. At our TP, the stock will trade at 15x/12.7x FY23/24E EV/EBITDA and USD
+91 22 6704 8066
194/144 FY23/24E EV/ton.
Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 152
01 September 2021 Dalmia Bharat

Story in charts
Exhibit 1: Installed capacity grew at a 24% CAGR over FY21-24E Exhibit 2: Sales volume grew at a 10% CAGR between FY11-21
35
30.75 25
30
20
25

20 15

(mtpa)
(mtpa)

15 10

10
5
5
1.2
0
0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
FY06 FY21
Installed capacities Sales volumes

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: Cement capacity expansion

Source: Company, Systematix Institutional Research

Exhibit 4: Sales volume CAGR of 12% over FY21-24E Exhibit 5: Regional capacity share of DALBHARA
35 16 25
14 21.5
30
12 20
25
10
20
(mtpa)

15
(%)

8
(%)

15
6
10 8.6 8.0
10
4
5 4.8
2 5
0 0
FY20 FY21 FY22E FY23E FY24E 0
Sales volumes YoY change (%) South East West Pan-India
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 153
01 September 2021 Dalmia Bharat
Exhibit 6: Increasing contribution of renewable energy in power generation
WHRS Solar Power
Incremental capacity (MW) 45 79
PLF assumed (%) 70 25
Power generation (mn kwh) 228 143
Cost savings (Rs/kwh) 4 2.5
Total savings (Rs mn) 911 358
Savings/ton (Rs) 36 14
Source: Company, Systematix Institutional Research

Exhibit 7: Decreasing leverage to accelerate growth Exhibit 8: Return ratios to improve over FY21-24E
4.0 3.7
20
3.5 18 17.3
2.8
3.0 16
2.5 14 12.6
1.7 11.4
2.0 1.6 12
(x)

1.4 9.7

(%)
1.5 10
7.9 7.4
1.0 8
1.3 0.3 0.3 6
0.5 0.0 0.1 4.0
0.0 0.5 4
0.3 0.3 0.3 2.1 2.1
-0.5 0.0 0.0 0.1 0.1 2
FY18
FY16

FY17

FY19

FY20

FY21

FY22E

FY23E

FY24E

0
FY20 FY21 FY24E
Net D/E Net Debt/EBITDA RoE (%) RoCE (%) RoIC (%)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: 1- year forward EV/EBITDA Exhibit 10: 1-year forward EV/ton

20.0 250.0
18.0
16.0 200.0
14.0
12.0 150.0
10.0
8.0 100.0
6.0
4.0 50.0
2.0
- -
Aug-17
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-13

Aug-19

Aug-20
Aug-11

Aug-12

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-21
1Y fwd. EV/EBITDA Mean +1SD -1SD 1Y fwd. EV/Ton Mean +1SD -1SD

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 154
01 September 2021 Dalmia Bharat

Company Background
th Dalmia Bharat Ltd. (DALBHARA) is the listed holding company of the cement business
DALBHARA is currently the 4 largest
of the Dalmia Bharat group. It owns 100% of Dalmia Cement (Bharat) Limited (DCBL)
cement player in India with a leading
which is the main operating company and houses the group’s entire cement
market share in East and South India. Its
cement production capacity is 30.75mtpa,
business. The company was founded in 1939 by Mr. Jaidayal Dalmia.
which is set to increase to 48.5mtpa by DCBL is the fourth largest cement manufacturer in the country, with an installed
FY24E. capacity of 30.75mtpa (as of 30th June 2021) across 13 cement plants and grinding
units spread across nine states. The company has its manufacturing plants in South
(capacity of 12.1mtpa), East (14.55mtpa) and North East (4.1mtpa) India. This is
supported by captive thermal power plants of 178 MW, captive solar power plants of
8 MW and a waste heat recovery system (WHRS) plant of 17.2 MW.
Production from the acquired plants of Murli Industries, Maharashtra (3mtpa cement
capacity) and the Eastern region (2.25mtpa grinding unit in West Bengal) has been
commissioned, while the balance grinding units of 4.75mtpa in Bihar and Odisha will
be completed in a phased manner between FY22-24E; this will help it strengthen its
position in the West (this market is currently being serviced from the South plants)
and East markets.
DALBHARA has an ambitious target of achieving a grinding capacity of 110-130mtpa
by 2031. In line with the long-term target, it announced plans to increase grinding
capacities by 10mtpa (apart from the ongoing capex discussed above) with
completion expected by FY24E. Further, the management will announce the detailed
plans to achieve capacities of 60mtpa in the next 9-12 months.
The company has a wide distribution network with over 20,000 dealers and sub-
dealers that cater to more than 22 states. It offers a range of cement variants
through its three marquee brands: Dalmia Cement, Dalmia DSP and Konark Cement.
Dalmia Cement is India’s largest manufacturer of slag cement and is a category
leader in super-specialty cement used for oil wells, railway sleepers and airstrips.
The Group has a refractory capacity of 320 KT across seven manufacturing units
located in Odisha, Gujarat, Madhya Pradesh, Chhattisgarh, Tamil Nadu, Germany and
China.
Exhibit 11: Capacity-mix of the company (FY22E) Exhibit 12: Regional capacity share

25
21.5

31% 20

East 15
(%)

West
10 8.6 8.0
South
61%
4.8
5
8%

0
South East West Pan-India
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 155
01 September 2021 Dalmia Bharat

Manufacturing facilities
Exhibit 13: Ariyalur unit, Tamil Nadu (3.0mtpa) Exhibit 14: Dalmiapuram unit, Trichy, Tamil Nadu (4.0mtpa)

Source: Company Source: Company

Exhibit 15: Kadapa Unit, Andhra Pradesh (2.5mtpa) Exhibit 16: Meghalaya plant (1.5mtpa)

Source: Company Source: Company

Exhibit 17: Solar plant, Kapilas, Odisha Exhibit 18: Robotic Lab at Ariyalur Plant

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 156
01 September 2021 Dalmia Bharat
Exhibit 19: DSP, Dalmia and Konark Cement cater to the retail segment while Infra Pro and Infragreen manage Institutional clients

Source: Industry, Systematix Institutional Research

Exhibit 20: Capacity exposure as on Mar’21 Exhibit 21: Product mix-FY21

13%
17% 18%

40% OPC
North-East
PPC
East
PSC
South
PCC
32%
33%
47%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 22: Key managerial personnel

Name Designation Background Qualification
Has more than 25 years of experience in the cement
B.S. and M.S. degrees in electrical
and sugar industries. He was part of the team that
Mr. Gautam Dalmia Managing Director engineering from Columbia
led the diversification of the company into the sugar
University.
business in 1994.
Has over 15 years of experience in the cement
[Link] degree from IIT-Delhi; gold-
Mr. Puneet Dalmia Managing Director industry. Before leading Dalmia Bharat Group, he co-
medalist MBA from IIM-Bangalore.
founded [Link] in 1999.
Has been associated with the growth and
Managing Director & development of the cement sector in India for the Science & law graduate and a
Mr. Mahendra Singhi
Chief Executive Officer last 41 years. Since 2013, he is the Managing Chartered Accountant.
Director and CEO of Dalmia Cement (Bharat) Limited.

Has 33 years of experience in business and financial ICWA and CS degree and a graduate
Mr. Dharmendra Tuteja Chief Financial Officer
management across various industries. from Shri Ram College of Commerce.

Has almost three decades of experience spanning CS from India and the UK; CA and
Executive Director (Legal) &
Dr. Sanjeev Gemavat industries like automobile, real estate, hospitality ICWA; post-graduate in Law and
Group Company Secretary
and manufacturing. Doctorate in Insider Trading.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 157
01 September 2021 Dalmia Bharat
Exhibit 23: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Key Risks YoY Growth
initiatives
 Demand grew by 5.3% YoY  Debottlenecking of 1mtpa  Higher mix of blended  Supply exceeding Volume: 18.5%
in FY16 vs. 2.5% YoY in FY15 of cement capacity, taking cement. demand. Revenue: 82.4%
led by strong growth in the the total capacity to  Rationalised existing  Rise in fuel and EBITDA: 164.2%
Eastern region. Demand in 25mtpa. depot network and logistics costs. PAT: 6129.5%
South markets remained streamlined stock-  Dependence on a
subdued. keeping and depot- particular region.
 Cement demand is expected handling operations.
to pick up led by the Central  Moved closer to
FY16 government’s focus on dispatching
Housing and infrastructure consignments from
activities. factories within the
 Central schemes like ‘Bharat state, saving
Mala’, 'Sagar Mala’, 'Setu warehousing and
Bharatam' in infra and secondary
construction of Smart Cities transportation costs.
and PMAY schemes in
housing to drive demand.
 South: Demand in South  NIL  A 9.2MW WHR unit is  Increase in raw Volume: 19.5%
India rose by 6% YoY led by currently under material, power Revenue: 16.2%
20%+ YoY demand growth in implementation at the and fuel costs. EBITDA: 19%
Telangana and Andhra integrated plant in  Rising logistics PAT: -76.8%
Pradesh. Development Rajgangpur, Odisha. costs.
activities undertaken in the  Increased the  Increasing
state capital of Amravati, consumption of competition from
irrigation projects and economic fuels, which national players.
FY17 innovative land pooling led include pet coke,
to improved demand in carbon black, wood,
AP/Telangana. charcoal, municipal
East: The estimated waste and saw dust.
shortage of 60mn housing
units in the Eastern region
would aid demand growth.
Demonetization impacted
demand in FY17.
 Cement demand is expected  Took over stressed assets  Commissioned a 9.2-  Economic Volume: 10.8%
to increase at a CAGR of ~8% under IBC – Kalyanpur MW WHRS at slowdown. Revenue: 15.2%
for the next 5 years, led by a Cement Limited (1.1 MnT, Rajgangpur (Odisha).  Higher pet coke, EBITDA: 6.3%
revival in government renamed Dalmia DSP Plans to set up 30MW coal and diesel PAT: 563.6%
spending on housing Limited) in Bihar. capacities at different prices.
(especially affordable  Announced capacity locations.
 Sand availability
housing), growth in private addition of 7.8mtpa in the  Adopted a 3-pronged issues in
housing and fast growth in Eastern region. approach - higher Rajasthan, Uttar
infrastructure spends production, continuous Pradesh, Bihar
(especially urban monitoring and cross- and Tamil Nadu.
FY18 infrastructure, road and plant collaboration,
irrigation).  Intensifying
which enhanced
competition.
 Eastern region followed by capacity utilization.
the Central and Northern  Upgraded kiln burners
regions could see healthy with next-generation
demand growth on a low variants (with less
base as state governments primary and air
have emphasized on conveying
development. requirements),
reducing fuel
consumption.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 158
01 September 2021 Dalmia Bharat
 Cement demand grew 13%  Planned capacity  Increased the  Economic Volume: 10.1%
in FY19 on a low base of the expansion in East India is proportion of slowdown Revenue: 10.5%
previous year (following GST on track. Expects to alternative fuels within  Cost escalation EBITDA: -3.6%
impact in 1HFY18) and commission the clinker line its fuel mix. PAT: 5.5%
 ESG
healthy demand growth in & ~50% of the grinding  Developed a network
East and South India. capacity by Mar'20;  Competition risk
optimization tool to
 Domestic cement demand is balance capacities to be optimize
estimated to grow at ~8% in commissioned by Mar'21. transportation and
FY20, driven by housing  Targets to reach 37mtpa & logistics costs.
FY19
development, primarily in 50MW of renewable  Using latest
the rural and affordable capacity by FY21. technologies in the
segments and infrastructure  DALBHARA has given a manufacturing process
developments (roads, bank guarantee of Rs along with timely
metro, railways, airports, 500mn to the Resolution debottlenecking of
ports & irrigation projects). Professional to acquire plants.
Murli Industries (3mtpa)
under the Insolvency &
Bankruptcy Code process.
 The cement production in  · The clinker manufacturing  Reduced clinker  Regulatory Volume: 3.3%
India was pegged at 334 plant at Rajgangpur-Line 3, consumption and uncertainty Revenue: 2%
million tonnes for FY20, a 1% Odisha of 3mtpa has been increased the  Market share loss EBITDA: 7.3%
decline YoY. commissioned and is under production of blended PAT: -27.3%
 Slow demand
 The outbreak of COVID-19 trial run. cement.
 Higher
and the subsequent  Cement grinding plants are  Optimised higher
operational costs
lockdowns are expected to under construction and auxiliary power
lead to moderate demand. part of the capacity is likely consumption due to
 Increased government focus to be completed by Dec'20. the increased use of
on real estate growth (smart  Turned around the cost-effective, low-
FY20 cities and housing for all) acquired asset, Kalyanpur grade and high-
along with better roads and Cement. Clinker moisture fuel in the
highways will be key productivity was enhanced Ariyalur, Dalmiapuram
catalysts for demand by 475 TPD to 1,550 TPD and the Rajgangpur
growth. and in phase 2 it shall be captive power plants.
increased to 2400 TPD.  30MW of the
combined potential of
WHRS + Solar power
has been identified and
is under
implementation.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 159
01 September 2021 Dalmia Bharat

Investment Analysis
Aggressive capacity additions through the organic/inorganic routes
DALBHARA has increased its capacities from 1.2mtpa in FY06 to 30.75mtpa in FY21
through the organic and inorganic routes. It acquired a 21.7% stake in OCL India in
Oct-07, which was increased to 45.4% in 2010, 48% in FY14 and 74.6% in FY15. OCL
India had a capacity of 6.7mtpa in FY15. The company acquired a 50% stake in
Assam-based Calcom Cement (clinker and grinding capacity was 0.3mtpa and
1.3mtpa respectively, which was subsequently expanded to 1.3mtpa of clinker
capacity and 2.1mtpa of grinding) in Jan-12, which was later increased to 75.6% in
Nov-12. Meghalaya-based Adhunik Cement (grinding capacity of 1.5mtpa) was
acquired in Sep-12. The company acquired a 100% stake (in two stages) in Bokaro
Jaypee Cement (2.1mtpa grinding unit with a 30-year slag and clinker supply
agreement) from Jaiprakash Associates in 2014.
The company acquired Kalyapur Cements (renamed Damia DSP Ltd and became a
wholly-owned subsidiary wef 10th Jul’18), the only integrated cement company in
Bihar with a capacity of 1mtpa, through the National Company Law Tribunal (NCLT)
process. The acquisition price for Kalyanpur Cements was Rs 3.5bn and a fresh equity
infusion of Rs 1.5bn was done to revive the operations. This capacity was revived
through a) improvement in limestone extraction efficiency, b) enhancement in kiln
productivity - 1,550 tpd from 475 tpd, c) reduction in kiln heat rate to 825 kcal/kg of
clinker from 1,118 kcal/kg of clinker and d) reduction in power consumption (from
138 to 85kwb/ton of cement). The clinker production capacity of this plant will be
increased from 1,550 tpd to 2,400 tpd going forward.
DALBHARA is also on the verge of completing the acquisition of Murli Industries
(cement grinding capacity of 3mtpa in Chandrapur, Maharashtra along with a
thermal power plant of 50MW). This plant was acquired for a consideration of Rs
4.02bn through a bidding process in Dec-17 by submitting a resolution plan. The
resolution plan of the company was approved by the NCLT in Jul-19 and was
subsequently upheld by National Company Law Appellant Tribunal in Jan-20. It will
have to further infuse about Rs 4bn for refurbishment and other costs to make the
plant operational. Murli Industries also has paper and solvent extraction units in
Maharashtra.
During FY21, it increased its clinker/grinding capacity by 3mtpa/2.25mtpa in the
Eastern region and will further expand its grinding capacity by 4.75mtpa in a phased
manner.
Exhibit 24: Installed capacity increased at a 24% CAGR between Exhibit 25: Sales volume grew at CAGR of 10% between FY11-21
FY06-21
35
30.75 25
30
20
25
15
20
(mtpa)
(mtpa)

15 10

10
5
5
1.2
0
0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
FY06 FY21
Installed capacities Sales volumes

Source: Company, Systematix Institutional Research Source: Systematix Institutional Research, Company FY11-14 volumes include OCL
India

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 160
01 September 2021 Dalmia Bharat
Murli Industries to become operational by 3QFY22E
DALBHARA expects to start commercial production from the acquired plants of Murli
Industries by 3QFY22E. It has also announced a capacity expansion of 1mtpa at this
plant. Limestone reserves at this plant are 27mt, which the management plans to
increase by 30-50%, and would be sufficient for 20 years of operations. The company
will need to mix sweetener (high-grade limestone) with existing limestone for which
arrangements are already in place. Murli Industries has fiscal incentives of ~Rs 12bn
which could be utilised by DALBHARA over the next 10 years.
New capacity to aid volume growth
The company plans to increase its clinker/cement capacities to 23.4mtpa/48.5mtpa
by FY24E from 18.68mtpa/30.75mtpa currently. Earlier, it had partially completed its
announced expansion plan of 7mtpa (capex: Rs37.2bn) in the Eastern region. It had
increased clinker capacity by 3mtpa through brownfield expansion, while the
grinding capacity had been increased by 2.25mtpa in Midnapore, West Bengal during
Mar-21. The balance 4.75mtpa grinding units in Bihar and Odisha will be completed
in a phased manner between FY22-24E. During FY21, the company also increased its
grinding capacity by 2mtpa through debottlenecking (Midnapore-0.4mtpa, Bokaro-
1.1mtpa, Kalyanpur Cements- 0.4mtpa and Assam-0.1mtpa).
Apart from the on-going expansion plans in the Eastern region, it announced further
expansion plans post the 1QFY22 results. This includes a greenfield plant in the
Southern region (3mtpa capacity and will be used to cater to the markets of Tamil
Nadu and Kerala), a brownfield expansion of 1.7mtpa in the Eastern region and de-
bottlenecking of capacities in the Southern (0.9mtpa), Western (1mtpa), North
Eastern (1.2mtpa) and Eastern (2.1mtpa) regions.
Exhibit 26: Cement capacity expansion plans to be completed by FY24E

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 161
01 September 2021 Dalmia Bharat
Its Clinker capacity is expected to be increased to 23.4mtpa from 18.68mtpa
(including the capacity of Murli Industries) by FY24E. This would be done through a)
1.6mtpa Greenfield plant in the Southern region and b) de-bottlenecking of its units
in the Eastern (1.7mtpa), North-Eastern (1mtpa) and Western (0.42mtpa) regions.
The balance capex for the on-going expansion plan is Rs 19.5-20bn and capex for the
recently announced 10mtpa expansion will be Rs 47-50bn.
Exhibit 27: Clinker capacity expansion plans

Source: Systematix Institutional Research, Company

The capacity expansion and the completion of the Murli Industries acquisition will aid
volume growth for the company. We estimate a 12% volume CAGR over FY21-24E.
Exhibit 28: Sales volume CAGR of 12% over FY21-24E
35 16

30 14

12
25
10
20
(mtpa)

(%)
8
15
6
10
4
5 2

0 0
FY20 FY21 FY22E FY23E FY24E
Sales volumes YoY change (%)
Source: Systematix Institutional Research, Company

Aggressive capacity expansion plans; aims to increase its total capacity to 110-
130mtpa by 2031…
DALBHARA announced its capital allocation policy in Jul-21 wherein it aspires to
become a pan-India player. The management aims to increase its cement production
capacity at a CAGR of 14-15% over the next decade, which would help it achieve a
production capacity of 110-130mtpa by 2031. This plan would be carried out in

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 162
01 September 2021 Dalmia Bharat
phases: In the first phase of expansion, capacity will be increased to 48.5mtpa by
FY24E and in the second phase (detailed plan will be announced in 9-12 months), it is
likely to be increased to 60mtpa. While the company has not disclosed details about
the expansion plans, we believe it may enter the Northern and Central regions apart
from increasing its presence in the Southern/Eastern regions.
Exhibit 29: DALBHARA may enter the Northern/Central regions
16
13.9
14

12

10

(mtpa) 8

4 3.3 3.0 3.3

0
North Central East South
Source: Systematix Institutional Research, Industry

…to help DALBHARA to become #1/#2 player in East/Pan-India by FY24E

The company has a 5.8% capacity share on a pan-India basis as of FY21, which would
increase to 8% by FY24E if it completes its expansion plans as per its guidance. It was
the 4th largest cement player in terms of installed capacity on a pan-India basis in
FY21. The recently announced expansion plans may help it to become the 2nd largest
player in terms of installed capacity on a pan-India basis. It has a leadership position
in terms of installed capacity in the Eastern region (17.4% capacity share including
capacity in the North Eastern region in FY21, which will increase to 21.5% in FY24E).
DALBHARA has a 6.8% capacity share in the Southern region in FY21, which should
increase to 8.6% by FY24E. Post completion of the acquisition of Murli Industries, the
company will have a 3.6% capacity share in the Western region in FY22E (4.8% in
FY24E).
Exhibit 30: Capacity-mix of the company (FY22E) Exhibit 31: Regional capacity share (FY24E)
25
21.5

20
31%

15
East
(%)

West
10 8.6 8.0
South
61%
4.8
5
8%

0
South East West Pan-India
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 163
01 September 2021 Dalmia Bharat
Focus on improving cost structure; targets to produce 100% blended cement
DALBHARA has improved its cost structure post FY15 with the higher adoption of
economic/alternate fuels. During FY16, it increased the usage of economic fuels (pet
coke, carbon black, wood, charcoal, municipal waste, saw dust etc.) to 73% of the
total fuel consumption in kiln and power plants vs. 45% in FY15. The usage of
economic fuel in the Southern plant was ~100% in FY16. The variable cost of
production of cement declined from Rs 1,741 in FY14 to Rs 1,351 in FY16 (Rs
1,615/ton in FY15). Though variable costs increased in FY18/FY19 due to an increase
in fly ash, slag and coal prices, the company managed to lower variable costs in
FY20/21 owing to lower energy costs.
Exhibit 32: Variable cost/ton of cement under control in FY20/21

1,700 1,632 15
1,615
1,573 1,582
1,600 10
1,484
1,500 5
(Rs/ton)

1,400 1,351 0
1,320

(%)
1,300 -5

1,200 -10

1,100 -15

1,000 -20
FY15 FY16 FY17 FY18 FY19 FY20 FY21

Variable cost/ton of cement (Rs) YoY chg (%) (RHS)

Source: Systematix Institutional Research, Company

The company plans to control its variable costs through higher consumption of
alternative fuel and by increasing the share of green power (WHRS + Solar). AFR
(Alternate Fuel & Raw Material) conversion increased to ~9% in FY21 vs. 6% in FY20
and the company intends to increase it to 14% by Mar-22E.
Exhibit 33: Increasing usage of alternative fuels
16
14
14

12

10 9
(%)

8
6
6
4
4 3

0
FY18 FY19 FY20 FY21 FY22E
AFR conversion (%)

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 164
01 September 2021 Dalmia Bharat
The company plans to increase its WHRS capacity to 62MW by Jul-22E (capacity was
increased to 17.2MW in FY22E after the commissioning of the 8MW plant in Odisha)
and solar power capacity to 87MW by FY23E (8MW in FY20). We believe that
increasing power generation through green sources (WHRS +Solar) will lead to
incremental cost savings of Rs 50/ton for the company.
Exhibit 34: Increasing contribution of renewable sources in energy production
WHRS Solar Power
Incremental capacity (MW) 45 79
PLF assumed (%) 70 25
Power generation (mn kwh) 228 143
Cost savings (Rs/kwh) 4 2.5
Total savings (Rs mn) 911 358
Savings/ton (Rs) 36 14
Source: Systematix Institutional Research, Company

DALBHARA increased the production of blended cement from 76% in FY20 to 82% in
FY21, which improved the clinker to cement (C:C) conversion ratio to 1.64x in FY21
vs. 1.6x in FY20. The company plans to produce 100% blended cement in the next 5
years.
Exhibit 35: Product-mix (FY20) Exhibit 36: Product-mix (FY21)

19% 17% 18%

24%

OPC OPC
PPC PPC
PSC PSC
PCC PCC
28% 32%
33%
29%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 37: Clinker to Cement conversion improved in FY20/21

1.66
1.64
1.64
1.62
1.60
1.60 1.59
1.58
(x)

1.58
1.56
1.56
1.54
1.52
1.50
FY17 FY18 FY19 FY20 FY21

Clinker to Cement conversion ratio

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 165
01 September 2021 Dalmia Bharat

Financial Analysis
We expect the company’s cement volumes to grow at a CAGR of 12% over FY21-24E
led by the commissioning of new plants and completion of Murli Industries
acquisition. We expect average capacity utilisation to be at 68%/71%/69% in
FY22/23/24E due to higher capacity additions. In FY21, grinding capacity
debottlenecking and expansion in Odisha led to lower average capacity utilisation of
72% even though cement production increased 7.3% YoY. We estimate cement
realisations to grow at a CAGR of 1.5% while revenue is expected to grow at a CAGR
of 13.6% over FY21-24E.
Exhibit 38: Expect 13.6% CAGR in sales over FY21-24E… Exhibit 39: …led by 12%/1.5% CAGR in volumes/NSR
180 18% 16% 14%
154
160 16% 14% 12%
140 133 14% 12% 10%
118 9%
120 105 12% 10%
95 97 7%
(Rs bn)

100 86 10% 8%
5.8%
80 8% 6%
60 6% 3%
4% 2.3%
1.9% 1.6%
40 4% 2% 0.4%
20 2% 0% -1.2%
0 0% -2%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY19 FY20 FY21 FY22E FY23E FY24E
Net sales YoY growth (%) (RHS) Sales volume Cement NSR

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

DALBHARA’s EBITDA grew 33.6% YoY (CAGR of 19.7% YoY over FY19-21) in FY21 led
by a) realisation growth of 5.8% YoY, which was also aided by a higher share of
premium products - 18% in FY21 vs. 13% in FY20 and b) a 5% YoY decline in opex/ton
as variable and freight costs remained under control and there was a reduction in
fixed expenses. We expect EBITDA to grow at a CAGR of 13.4% during FY21-24E.
The OPM of the company increased to 26.4% FY21 from 20.5%/21.5% in FY19/20 led
by higher realisation and lower opex. We expect the OPM to be at 25.2% in FY22E
due to higher fuel costs and improve thereafter to 25.9%/26.4% in FY23/24E.
Adjusted profits grew at a CAGR of 47.3% over FY19-21 led by strong operating
performance. We expect its adjusted profits to grow at a CAGR of 30.8% over FY21-
24E. We estimate depreciation expense to decline 15.7% YoY in FY24E as we believe
that the company will amortize goodwill by that time.
Exhibit 40: Estimate EBITDA CAGR of 13.4% … Exhibit 41: …and PAT CAGR of 30.8% over FY21-24E
45 27 25 600

40 26 500
41 20
25 20.4 400
35
34 24 15 300
(Rs bn)
(Rs bn)

14.8
(%)
(%)

30
30 23 10 200
11.7
25 28
22 9.1 100
5
20 21 0
20 21 2.9 3.1 2.2
19
15 20 0 -100
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) Adj. PAT YoY growth (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 166
01 September 2021 Dalmia Bharat
Improvement in cement prices and lower opex led to a strong improvement of 24.5%
YoY in EBITDA/ton in FY21 (13.7% CAGR between FY19-21). We expect EBITDA/ton to
be at Rs 1,306/Rs 1,352/Rs 1,396 in FY22/23/24E (CAGR of 1.3% YoY).
Exhibit 42: EBITDA/ton to increase at a CAGR of 1.3% YoY over FY21-24E

1,396
1,352
1,344

1,306
1,600 60%

1,243

1,238

1,188
1,400

1,080
1,057
1,051

1,040
40%
1,200

861
20%
1,000

(Rs/ton)

618
800 0%
600
-20%
400
-40%
200
0 -60%

FY15
FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
EBITDA/ton YoY change (%) (RHS)
Source: Company, Systematix Institutional Research

DALBHARA has been consistently generating free cash since FY15. Its operating cash
flow (OCF) increased at a CAGR of 13.4% over FY16-21 led by an improvement in
profits. It generated a cumulative free cash flow (FCF) of Rs 83.3bn over FY16-21
despite a capex of Rs 49.7bn in this period.
During FY21, the company’s OCF increased by 53.9% YoY led by a strong
improvement in profits and lower working capital requirements (Rs 10.26bn release
of working capital in FY20/21). Higher OCF led to a 2.6x YoY increase in FCF in FY21.
We expect the company to generate cumulative OCF of Rs 90.9bn over FY21-24E;
whereas; capex in this period is estimated to be Rs 90.5bn. Higher capex will lead to
negative FCF in FY23E.
Exhibit 43: Strong cash generation to continue; expect higher capex going forward

40 30
30 25
20 20
10 15
(Rs bn)

(Rs bn)
0 10
-10 5
-20 0
-30 -5
-40 -10
FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

CFO Capex FCF (RHS)

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 167
01 September 2021 Dalmia Bharat
DALBHARA’s net debt peaked out in FY15 after the company increased its stake in
OCL India from 45.4% to 74.6%. It has consistently improved its leverage post FY15
and its net debt reduced to Rs 1.2bn in FY21 vs. Rs 66.3bn in FY15. Gross debt of the
company peaked out at Rs 87.6bn in FY16 and gross debt at FY21-end was Rs 37.3bn.
We expect gross debt to increase to Rs 49.9bn and net debt to increase to Rs 11bn in
FY24E as the company is planning to increase its capacity from 30.75mtpa to
48.5mtpa by FY24E.
Net debt/EBITDA of the company was 0.04x in FY21 vs. 3.7x in FY16 and we expect it
to be at 0.32x/0.27x in FY23/24E. Its net D/E improved to 0.01x in FY21 vs. 1.3x in
FY16 and we expect net D/E to be at 0.07x/0.06x in FY23/24E.
Exhibit 44: Gross/net debt reduced over FY16-21 Exhibit 45: Decreasing leverage to support the next leg of growth
100 3.7
4.0
90
3.5
80 2.8
3.0
70
2.5
60 1.7
(Rs bn)

2.0 1.6

(x)
50 1.4
1.5
40
1.0 1.3
30 0.3 0.3
0.5 0.0 0.1
20
0.0 0.5
10 0.3 0.3 0.3
-0.5 0.0 0.0 0.1 0.1
0

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
FY18
FY16

FY17

FY19

FY20

FY21

FY22E

FY23E

FY24E

Gross Debt Net Debt Net D/E Net Debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

DALBHARA’s RoE improved to 7.9% in FY21 vs. 2.1% in FY20 led by a) the
improvement in profitability as cement prices increased significantly in the South
markets and b) cost savings - control on variable cost and reduction in fixed costs led
to Rs 197/ton cost reduction. Debt reduction led to an interest expense decline of
28.9% in FY21. We expected RoE to improve to 12.6% by FY24E led by higher assets
turnover and improvement in EBIT margins (19.2% in FY24E vs. 14.5% in FY21).
Exhibit 46: Clinker to Cement conversion improved in FY20/21
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 75.1% 90.9% 62.7% 64.8% 73.7% 73.9% 74.2%
PBT/EBIT 48.6% 52.5% 64.3% 92.6% 93.8% 93.9% 93.0%
EBIT/Sales 9.3% 6.8% 5.7% 14.5% 14.4% 16.1% 19.2%
Asset turnover (x) 0.4 0.5 0.5 0.6 0.6 0.6 0.7
Assets/Equity (x) 1.9 1.8 1.7 1.6 1.4 1.4 1.4
ROE (%) 2.9 2.9 2.1 7.9 8.9 10.2 12.6
Source: Systematix Institutional Research, Company

RoCE is expected to improve to 9.7% in FY24E vs. 7.4% in FY21 on the back of an
improvement in margins. RoIC is expected to improve to 17.3% in FY24 vs. 11.4% in
FY21 as an improvement in profitability will support strong cash generation.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 168
01 September 2021 Dalmia Bharat
Exhibit 47: Return ratios to improve over FY21-24E
20
18 17.3

16
14 12.6
11.4
12
9.7

(%)
10
7.9 7.4
8
6
4.0
4 2.1 2.1
2
0
FY20 FY21 FY24E

RoE (%) RoCE (%) RoIC (%)

Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 169
01 September 2021 Dalmia Bharat

Cash flow analysis & corporate governance

FCF generation: It generated a cumulative FCF of ~Rs 68bn between FY17-21.
FCF utilisation: Of the total FCF of Rs 68bn, it has paid 2.7% (~Rs 1.8bn) towards
dividends (including dividend tax) and returned another 4.8% to shareholders
through buyback of equity shares (6.17mn shares at an average price of Rs
531.96/share amounting to Rs3.28bn during FY21). Cumulative return to
shareholders was 7.5% between FY17-21. Gross debt declined by Rs43.1bn over
FY17-21 (63% of FCF) and current investments (including cash) was up Rs7.9bn in this
period (13% of FCF).
FCF expectation: We estimate its FCF to decline to Rs 1.9bn in FY22E due to the
higher capex and decline in margins while it is expected to generate a negative FCF of
Rs 5.7bn in FY23E. However, the FCF is expected to rise sharply to Rs 4.2bn in FY24E.
Earnings quality: During the last 5 years, DBL has earned a cumulative PAT of Rs
18bn against which it generated an OCF of Rs 114bn (6.4x of profits).
Exhibit 48: FCF to decline going forward Exhibit 49: Healthy cash flow quality

30 8% 160 149 660

7% 140 640
25
25.5 6% 114
20 120 620
5%
(Rs bn)

100 600
15 4% 80

(%)
80 580
(Rs bn)

3%
10
10.8 2% 60 560
9.9
5 7.6 1% 40 540
1.9 4.2 18 23
0% 14
0 20 520
(5.7) -1%
-5 - 500
-2% 3Yrs 5Yrs 10Yrs
-10 -3%
Cumulative PAT
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Cumulative OCF
FCF FCF yield (%) (RHS) Cumulative OCF as % of Cum. Pat- (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 50: Contingent liabilities

Contingent liabilities (Rs mn) FY16 FY17 FY18 FY19 FY20
Claims against the Company not acknowledged as debts 1,912 1,900 2,120 2,920 2,820
Demand raised by following authorities in dispute:
-Excise, Customs, Service tax, VAT, Entry tax and Sales tax 1,726 1,950 1,980 2,160 1,990
-Income tax matters 112 890 730 420 500
Other monies for which Group is contingently liable 29 20 20 20 -
Total 3,778.9 4,760.0 4,850.0 5,520.0 5,310.0
% of networth 8.2% 4.9% 4.7% 5.2% 5.0%
Source: Company, Systematix Institutional Research

Exhibit 51: Other key monitorables

Other key monitorables FY16 FY17 FY18 FY19 FY20
Remuneration to Directors & KMPs (Rs mn) 62 112 189 231 400
% of PBT 1.2% 10.4% 4.9% 6.8% 11.2%
Auditor's remuneration (Rs mn) 23 37 40 40 30
% of PBT 0.5% 3.4% 1.0% 1.2% 0.8%
Pledged shares (%) NA NA NA NIL NIL
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 170
01 September 2021 Dalmia Bharat

Systematix vs. Consensus

Our revenue estimates are 2-5% lower than Bloomberg Consensus estimates likely
due to lower sales volume assumptions. However, our EBITDA estimates are 2-3%
above Bloomberg Consensus estimates. DALBHARA’s operating profit is expected to
grow at a CAGR of 13.5% between FY21-FY24E led by 1) higher sales
volumes/realisation and 2) operational cost savings led by the higher usage of
WHRS/solar power.
Exhibit 52: Bloomberg vs. our estimates (consolidated financials)
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 123 140 158
Systematix est. 118 133 154
% Difference -4% -5% -2%
EBITDA (Rs bn)
Consensus 29 33 39
Systematix est. 30 34 41
% Difference 2% 3% 3%
EBITDA Margin (%)
Consensus 23.7% 23.8% 24.9%
Systematix est. 25.2% 25.9% 26.4%
Difference (bps) 152.3 211.0 147.5
Source: Bloomberg, Systematix Institutional Research

Exhibit 53: Key assumptions

Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Sales volume (mt) 17.0 18.7 19.3 20.7 22.7 25.5 29.1
Cement Realization (Rs/ton) 4,657 4,745 4,686 4,959 5,073 5,095 5,178
Per ton costs (Rs)
Raw material 935 956 905 860 725 732 734
Employee cost 364 347 350 344 337 317 292
Power & Fuel 828 940 901 808 969 921 948
Freight 919 979 982 1,008 1,038 1,070 1,102
Other Expenses 825 816 797 718 812 820 824
Total Cost 3,872 4,037 3,935 3,739 3,881 3,860 3,900
Blended EBITDA/ton 1,188 1,040 1,080 1,344 1,306 1,352 1,396
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 171
01 September 2021 Dalmia Bharat

Key Risks
1) Lower cement prices in the Southern region: Historically, cement prices have
remained volatile in the Southern region due to lower capacity utilisation of
the existing units. We have assumed a better pricing scenario considering an
improved pricing scenario in 1.5 years. Lower-than-estimated cement prices
will adversely impact our earnings estimates.
2) Substantial debt-funded capex: The company has been aggressive in capacity
expansions historically. It has done few inorganic capacity expansions like a)
grinding units of JP Associates, b) Kalyanpur cement’s acquisition, c) Murli
Industries’ acquisition and d) increase in stake in OCL India. It has set up an
ambitious target of achieving 110-130mtpa capacity by 2031. A significant
increase in its capacity through the inorganic route could put pressure on the
company’s balance sheet.
3) Inflationary pressures in fuel costs: There has been a sharp increase in the
prices of pet coke, coal and diesel in the last few months. Pet coke prices are
up ~75% over the last year while imported coal price has increased by 30%+.
Current pet coke prices are up ~40% vs. the 4QFY21 consumption price.
Though cement companies are trying to control energy costs by changing their
fuel mix (lower usage of pet coke and Australian coal), continued escalation in
coal/pet coke prices could impact our earnings estimate if the industry is
unable to pass on the cost increases to consumers.
4) Unfavourable court outcome related to the matter of illegal transfer of
Mutual funds: DALBHARA alleged that MFs valued at ~Rs 3.44bn of its
subsidiary Dalmia Cement (Bharat) Ltd (DCBL) were illegally transferred by
Allied Financial Services Private Ltd (AFSPL). These securities were lying with
IL&FS Securities Services Ltd (“ISSL”). The Supreme Court in Mar-21 allowed
these MF units lying with ISSL to be released in favour of DCBL subject to DCBL
furnishing requisite Bank Guarantee. Any negative outcome on this matter
may lead to a financial loss for the company.
5) Prolonged pandemic-related restrictions/lockdowns: We estimate a cement
volume growth of 9.4% in FY22E; however, continued localised lockdowns in
the country could act as a downside risk to our estimates. Besides hurting
demand, lockdowns/restrictions impact the mobilisation of labour at
construction sites, thus delaying the process. However, we derive confidence
from the vaccination pace in India and believe economic recovery and
normalcy will be attained from 2HFY22E onwards.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 172
01 September 2021 Dalmia Bharat

Valuation and View

DALBHARA has increased its capacity from 1.2mtpa in FY06 to 30.75mtpa in FY21
through the organic and inorganic routes. Aggressive capacity addition helped it to
grow ahead of the industry while its sales volumes grew at a 10% CAGR during FY11-
21. It has set ambitious targets of achieving a cement production capacity of 110-
130mtpa by 2031. In this direction, the company announced expansion projects of
9.9mtpa spread across the South, West, East and North East apart from the on-going
projects of 7.75mtpa. Completion of the above-mentioned projects will help
DALBHARA achieve a grinding capacity of 48.5mtpa by FY24E from 30.75mtpa
currently. In 9-12 months, the company will announce its plan to achieve a cement
production capacity of 60mtpa.
It is one of the few cement companies that have completed the buyback of equity
shares (6.17mn shares at an average price of Rs 531.96/share during FY21). Further,
it has announced plans to return up to 10% of the operating cash flows to
shareholders through dividends and share buy-backs.
The company has consistently improved its leverage post FY15; its net debt reduced
to Rs 1.2bn in FY21 from Rs 66.3bn in FY15. We expect net debt to be at Rs 2.1bn/Rs
11.1bn/Rs 11bn in FY22/23/24E. Net debt/EBITDA of the company was 0.04x in FY21
vs. 3.7x in FY16 and we expect it to be at 0.32x/0.27x in FY23/24E.
DALBHARA’s RoE improved to 7.9% in FY21 vs. 2.1% in FY20 led by a) an
improvement in profitability as cement prices increased significantly in the South
markets and b) cost savings - control on variable cost and reduction in fixed costs led
to Rs 197/ton cost reduction. We expect RoE to improve to 12.6% by FY24E.
It trades at 14.4x/12.6x/10.7x FY22/23/24E EV/EBITDA and USD 160/164/122
FY22/23/24E EV/ton. The stock has traded at an average EV/EBITDA of 10.6x/9x in
the last 5/10 years. With the improvement in profitability (EBITDA/adjusted PAT
expected to grow at a CAGR of 13.4%/30.8% over FY21-24E), return ratios, plans to
increase capacity while maintaining a strong balance sheet and improving
shareholders returns, we expect the stock to trade at higher multiples. We value it at
13.5x FY23E EV/EBITDA (adjusted for CWIP as capacity expansion will get completed
in FY24E) to arrive at a target price of Rs 2,615 (an upside of 19% from the CMP) and
initiate coverage with a BUY rating. At our TP, the stock will trade at 15x/12.7x
FY23/24E EV/EBITDA and USD 194/144 FY23/24E EV/ton.
Exhibit 54: 1- year forward EV/EBITDA Exhibit 55: 1-year forward EV/ton
20.0 250.0
18.0
16.0 200.0
14.0
12.0 150.0
10.0
8.0 100.0
6.0
4.0 50.0
2.0
- -
Aug-17
Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-13

Aug-19

Aug-20
Aug-11

Aug-12

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-21

1Y fwd. EV/EBITDA Mean +1SD -1SD 1Y fwd. EV/Ton Mean +1SD -1SD

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 173
01 September 2021 Dalmia Bharat

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 96,740 105,220 117,516 132,788 154,116 Equity share capital 390 370 370 370 370
Growth (%) 2.0 8.8 11.7 13.0 16.1 Reserves & surplus 105,220 125,890 137,186 151,429 171,144
EBITDA 20,830 27,830 29,595 34,438 40,628 Net worth 105,610 126,260 137,556 151,799 171,514
Growth (%) 7.3 33.6 6.3 16.4 18.0 Loan Funds 59,500 37,260 39,060 49,360 49,860
EBITDA margin (%) 21.5 26.4 25.2 25.9 26.4 Net Deferred Taxes 12,770 16,340 16,340 16,340 16,340
Depreciation 15,280 12,620 12,616 13,112 11,051 Total Liabilities 179,530 181,470 194,766 219,525 239,974
EBIT 5,550 15,210 16,979 21,326 29,577
Other Income 2,170 1,820 1,317 1,356 1,397 Net block 125,550 137,380 144,644 145,781 196,230
Interest expenses 4,150 2,950 2,366 2,653 3,473 Capital WIP 17,400 10,130 14,250 35,500 5,000
PBT 3,570 14,080 15,929 20,030 27,501 Investment 28,160 34,140 34,140 34,140 34,140
Tax 1,190 1,650 3,982 5,007 6,875 Current Assets 35,000 36,450 38,347 41,135 43,513
Effective tax rate (%) 33.3 11.7 25.0 25.0 25.0 Inventories 9,740 9,240 9,764 10,286 11,005
Adjusted PAT 2,240 9,120 11,747 14,806 20,392 Sundry Debtors 3,970 6,880 7,018 7,543 8,253
Growth (%) (27) 307.1 28.8 26.0 37.7 Cash and Bank 4,030 3,110 4,010 5,368 5,895
Net Margin (%) 2.3 8.7 10.0 11.2 13.2 Current Liab & Prov. 26,580 36,630 36,614 37,031 38,909
Reported PAT 2,380 12,430 11,947 15,022 20,626 Net current assets 8,420 (180) 1,732 4,103 4,604
Growth (%) (31.8) 422.3 (3.9) 25.7 37.3 Total Assets 179,530 181,470 194,766 219,525 239,974
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PBT (Ex-Other income) 3,570 14,080 15,929 20,030 27,501 Profitability (%)
Depreciation 15,280 12,620 12,616 13,112 11,051 EBITDA Margin 21.5 26.4 25.2 25.9 26.4
Interest Provided 2,540 2,030 2,366 2,653 3,473 Net Margin 2.3 8.7 10.0 11.2 13.2
Other Non-Cash items -100 -720 - - - ROCE 2.1 7.4 6.8 7.7 9.7
Chg in working cap 2,740 7,520 -1,013 -1,012 26 ROE 2.1 7.9 8.9 10.2 12.6
Tax paid -660 430 -3,982 -5,007 -6,875 RoIC 4.0 11.4 12.2 14.7 17.3
Operating Cashflow 23,370 35,960 25,917 29,775 35,176 Per Share Data (Rs)
Capital expenditure -13,480 -10,460 -24,000 -35,500 -31,000 EPS 12 49 63 79 109
Free Cash Flow 9,890 25,500 1,917 -5,725 4,176 CEPS 12 49 63 79 109
Other income 1,190 1,750 - - - BVPS 547 675 735 811 917
Investments -5,310 5,950 - - - DPS 2 1 2 3 3
Investing Cashflow 5,770 33,200 1,917 -5,725 4,176 Valuations (x)
Equity Capital Raised - -4,000 - - - PER 189.5 45.1 35.0 27.8 20.2
Loans Taken / (Repaid) 120 -25,250 1,800 10,300 500 P/CEPS 24.2 18.9 16.9 14.7 13.1
Interest Paid -4,670 -3,960 -2,366 -2,653 -3,473 P/BV 4.0 3.3 3.0 2.7 2.4
Dividend paid (incl tax) -930 - -451 -564 -677 EV / Sales 4.7 4.0 3.6 3.3 2.8
Income from investments - - - - - EV / EBITDA 21.7 15.3 14.4 12.6 10.7
Others -430 -450 - - - Dividend Yield (%) 0.1 0.1 0.1 0.1 0.1
Financing Cashflow -5,910 -33,660 -1,017 7,084 -3,649 Gearing Ratio (x)
Net chg in cash -140 -460 900 1,359 527 Net Debt/ Equity 0.3 0.0 0.0 0.1 0.1
Opening cash position 2,800 3,010 2,550 3,450 4,808 Net Debt/EBIDTA 1.4 0.0 0.1 0.3 0.3
Closing cash position 2,660 2,550 3,450 4,808 5,335 Working Cap Cycle (days) 32.1 -0.7 5.7 12.0 11.7
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 174
 Systematix
Institutional Equities

JK Cement 01 September 2021

Strong growth plans but valuations rich

INITIATING COVERAGE JK Cement Ltd’s (JKCE) exposure to the white cement segment (stable margin
Sector: Cement Rating: HOLD profile vs. grey cement) has offered earnings stability and helped it achieve growth
in the grey cement segment (capacity/sales volume CAGR of 10.5%/8.5% over
CMP: Rs 3,261 Target Price: Rs 3,160
FY09-21). It plans to increase its grey cement capacity by 4mtpa by FY24E after the
Stock Info recent addition of 4.7mtpa, which will result in a total installed grey cement
Sensex/Nifty 57,552/17,132 capacity of 18.7mtpa. Higher limestone reserves in the Central region (sufficient for
Bloomberg JKCE IN 15mtpa capacity) provide growth visibility. The improvement in profits from its
Equity shares 77mn grey cement business in FY20/21 was led by an increase in realisations and cost
52-wk High/Low Rs 3,690/1,412 savings. We expect strong OCF generation to continue till FY24E which will help in
Face value Rs 10 funding its capex requirements. RoE is expected to remain around 17-20% till FY24E
M-Cap Rs 252bn/ USD 3.4bn vs. 21.6% in FY21. RoIC is expected to remain stable at 12-13% till FY24E (13.3% in
3-m Avg volume USD 3.53mn FY21). We expect EBITDA/EPS CAGR of 9.9%/10.4% over FY21-24E. Leverage is
Financial Snapshot (Rs mn) expected to remain under check despite the planned capex. Valuations have re-
Y/E March FY22E FY23E FY24E rated significantly in the last few months due to which, the upside is limited. We
Sales 76 84 93 initiate coverage on the stock with a HOLD rating and a target price of Rs 3,160.
EBITDA 17 19 20
Strong growth visibility; white cement exposure provides earnings stability
PAT 8 9 10
EPS (Rs) 104 118 127 JKCE has increased its grey cement capacity/sales volume at a CAGR of 10.5%/8.5%
PE (x) 31.4 27.6 25.6 over FY09-21. Its plan to further increase its grey cement capacity in the Central
RoE (%) 19.7 19.0 17.4
region by FY24E provides volume growth visibility in the medium term. With higher
EV/EBITDA (x) 16.6 15.1 13.6
RoCE (%) 11.2 11.3 10.9
limestone reserves (518mt) in Panna, Madhya Pradesh, its growth momentum is
Dividend yield (%) 0.3 0.4 0.4 likely to continue. JKCE’s presence in the white cement segment (stable margins vs.
grey cement with an OPM of 25-30%) provides earnings stability and sets it apart
Shareholding pattern (%) from other mid-cap companies.
Dec-20 Mar-21 Jun-21
Promoter 58 58 58
Improvement in grey cement profits; leverage to remain under check
–Pledged - - - Over the last two years, JKCE has benefitted from cost-efficiency measures and
FII 15 17 17
improved realisations in its key markets. We believe that the EBITDA/ton of its grey
DII 22 21 21
cement business improved to Rs 858/Rs 1,010 in FY20/FY21 from Rs 396 in FY19. We
Others 5 5 5
estimate an EBITDA CAGR of 9.9% over FY21-24E. OCF increased at a CAGR of 50%
Stock Performance (1-year) over FY19-21. We expect a cumulative OCF of Rs 42.6bn over FY21-24E which will
4000 help the company control its leverage despite the planned capex. Net debt/EBITDA
3500
has improved every year since FY16 and improved to 1.3x in FY21 vs. 5.7x in FY16.
3000
We expect net debt/EBITDA to be 1.44x/1.49x/1.32x in FY22/23/24E.
2500
2000
Multiple has re-rated significantly; upside limited
1500
1000 The stock has witnessed a significant multiple re-rating given the improvement in the
Nov-20

Jan-21
Aug-20

Sep-20

Dec-20

Feb-21
Mar-21

Apr-21

Jul-21

Aug-21
Oct-20

May-21

Jun-21

profitability of JKCE’s grey cement segment in FY20/21, improved balance sheet

JK Cement Sensex
despite high capex and the announcement of the next leg of growth capex without
increasing the leverage on its balance sheet. It trades at 16.6x/15.1x/13.6x
Sanjeev Kumar Singh FY22/23/24E EV/EBITDA vs. an average of 10.8x in the last 7 years. We expect an EPS
sanjeevsingh@[Link] CAGR of 10.4% over FY21-24E with stable RoIC and improved leverage position. We
+91 22 6704 8017 value JKCE at 14x FY23E EV/EBITDA (adjusted for CWIP) to arrive at a target price of
Rahul Jain Rs 3,160 and initiate coverage on the stock with a HOLD rating.
rahuljain@[Link]
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 175
01 September 2021 JK Cement

Story in charts
Exhibit 1: Grey cement capacity increased by >3x over FY09-21… Exhibit 2: …aiding sales volume growth of 2.8x in the same period
16 14.7 80
14.0 12 25
14 70 10.3
10 20
12 60
10.5 10.5 10.5 10.5 10.5 8.2 8.6 8.4
50 15
10 8 7.4
6.9
(mtpa)

7.5 7.5 7.5 7.5 7.5 40 6.3 10

(mtpa)
(%)
8 5.6 5.4

(%)
30 6 5.1 5.3
6 4.3 5
4.5 20 3.8
4
4 10 0
2 0 2 -5
0 -10 0 -10
FY11

FY19
FY09

FY10

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY20

FY21

FY14
FY09

FY10

FY11

FY12

FY13

FY15

FY16

FY17

FY18

FY19

FY20

FY21
Installed capacities (mtpa) YoY growth (%) (RHS) Sales volume YoY growth (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: Capacity-mix in the Northern & Central regions to improve Exhibit 4: Grey cement sales volume to grow at a 10.2% CAGR
further over FY21-24E
100 -
15
90 21 20 20 20 16
29 29 29 29 29 13.8
80 40 40 40 40 40 14
70 - - - - - 11 10 10 10
- 5 5 5 29 12.8
13
60 - - - - -
11.9
4
(%)

50 100 12
(mt)

40
71 71 71 71 71 68 11
30 60 60 60 60 60 65 65 65 10.3
51
20 10
10
9
0
FY14
FY09
FY10
FY11
FY12
FY13

FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E

8
FY21 FY22E FY23E FY24E
North West Central South Sales volume

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: Estimate an EBITDA CAGR of 9.5% in the white cement Exhibit 6: Debt to increase in FY23E considering on-going expansions
segment over FY21-24E
7,001 25
40
6,001 20 35
5,001 15 30
25
4,001 10
(Rs mn)

(Rs bn)
(%)

20
3,001 5
15
2,001 0
10
1,001 -5 5
1 -10 0
FY17
FY14

FY15

FY16

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
FY21
FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY22E

FY23E

FY24E

EBITDA YoY chg (%) (RHS) Gross Debt Net Debt

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 176
01 September 2021 JK Cement
Exhibit 7: Aims to increase the share of green power to 75% from Exhibit 8: EBITDA/ton improved in FY20/21 due to higher
25% currently profitability of the grey cement segment
80 75

1,322
1,242

1,247
1,296
1,328
1,400 100
70
1,200 80

961
60

869
60

862

859

847
839
1,000
50

(Rs/ton)
40

637
800

606
550
(%)

40

(%)
20

476
29 600
30 25 27 25 0
23
400
-20
20
200 -40
10
0 -60

FY12

FY21
FY22E
FY23E
FY24E
FY10
FY11

FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
0
FY20 FY21 FY22E FY23E FY24E FY30E
Green power consumption Blended EBITDA/ton YoY change (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Generated positive FCF over FY16-21; momentum to Exhibit 10: Leverage improved post FY16; expect a further
continue improvement despite the planned capex
20 10 8.0
6.9
15 7.0 6.5
5 5.7
10 6.0
5
(Rs bn)

0 5.0
3.9
(Rs bn)

0
(x)

4.0
-5 2.9
-5 2.5
3.0 2.2
-10 1.7 1.8 1.6
-10 2.0 1.3 1.3 1.44 1.49 1.32
1.2
-15 0.8 0.9
1.0 0.5 0.5 0.5 0.4
-20 -15
0.0
FY12

FY20
FY10
FY11

FY13
FY14
FY15
FY16
FY17
FY18
FY19

FY21
FY22E
FY23E
FY24E

FY19
FY14

FY15

FY16

FY17

FY18

FY20

FY21

FY22E

FY23E

FY24E
CFO Capex FCF (RHS)
Net D/E Net Debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1- year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
16 240
210
12 180
(US$/ton)

150
120
(x)

8
90
4 60
30

0 0
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-17

Aug-21
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 177
01 September 2021 JK Cement

Company Background
JK Cement Ltd (JKCE), a leading manufacturer of grey & white cement and wall putty
JKCE is amongst the two leading
in India, is an affiliate of the industrial conglomerate JK Organisation, which was
producers of white cement & wall putty
founded by Mr. LalaKamlapat Singhania.
in India. It has a grey cement production
capacity of 14.7mtpa which would It commenced operations in May 1975 with commercial production at its first grey
increase to 18.7mtpa by FY24E. cement plant at Nimbahera, Rajasthan. Subsequently, it set up two more units in
Rajasthan at Mangrol and Gotan. In 2009, the company set up a greenfield unit in
Muddapur, Karnataka and extended its footprint in southwest India. In 2014, it
expanded its capacity in the North with a brownfield expansion of 1.5mtpa
integrated unit at Mangrol and a split grinding unit of 1.5mtpa at Jhajjar, Haryana. It
now has an installed grey cement capacity of 14.7mtpa in India, with the new
grinding units in Aligarh and Balasinor further strengthening its growing footprints.
The company plans to expand its presence in the Central region by establishing an
integrated plant at Panna, Madhya Pradesh and a split grinding unit at Hamirpur,
Uttar Pradesh by mid-FY24E, post which its grey cement production capacity in India
will be 18.7mtpa.
JK White Cement, a division of JKCE, is the leading producer of white cement and
wall putty with a pan-India presence and sales across 43 countries. With a capacity of
0.6mtpa, it is the second-largest manufacturer of white cement in India. JKCE made
its international foray by setting up a greenfield dual-process white cement-cum-
grey cement plant at Fujairah, UAE to cater to the GCC and African markets. With the
commissioning of this plant, it became one of the largest producers of white cement
globally, with a total white cement and wall putty capacity of 1.2mtpa each.
JKCE was the first company to install a captive power plant in 1987 at Bamania,
Rajasthan and the first cement company to install a waste heat recovery (WHR)
power plant. At its different locations, the company has a total captive power
generation capacity of 142.6MW, which includes 40.1MW of WHR power plants.
It sells grey cement in more than 15 Indian states/union territories while grey clinker
to its customers in Nepal; white cement and wall putty are sold across India. For grey
cement, it has a network of 11,000+ dealers and retailers whereas white cement and
wall putty products are sold through 50,000+ dealers and retailers.
Exhibit 13: Corporate Structure of JK Cement

[Link] Ltd.

100% 100%
JaykayCem [Link]
(Central) Ltd. (Fujairah,FZC)
90%

[Link] Works
Fujairah, FZC.
100%

[Link] White
Cement Africa Ltd.,
(Fujairah), FZC.

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 178
01 September 2021 JK Cement
Exhibit 14: Production capacity of JKCE
Grey White Wall Thermal Waste Heat
Plant Location State
Cement Cement Putty Power Recovery
Unit (MTPA) (MW)
Nimbahera, Chittorgarh Rajasthan 4.3 - 20 13.2
Gotan, Nagaur* Rajasthan 0.5 0.6 0.6 7.5 -
Mangrol, Chittorgarh Rajasthan 3.3 - 25 26.9
Jharli, Jhajjar Haryana 1.5 - - -
North- Total 9.5 0.6 0.5 52.5 40.1
Katni Madhya Pradesh - - 0.7 - -
Aligarh Uttar Pradesh 1.5 - - -
Central - Total 1.5 0.7 - -
Muddapur, Bagalkot Karnataka 3.0 - 50 -
South - Total 3.0 - - 50 -
Balasinor Gujarat 0.7 - - -
West - Total 0.7 - - - -
Fujairah, UAE* - - 0.6 - - -
Total 14.7 1.2 1.3 102.5 40.1
Planned capacity
Panna Madhya Pradesh 2.0 22.0
Hamirpur Uttar Pradesh 2.0
Total capacity by FY24E 18.7 1.2 1.3 102.5 62.1
Source: Company, Systematix Institutional Research, * Capacity can be altered for 1mtpa grey cement production

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 179
01 September 2021 JK Cement

Manufacturing facilities
Exhibit 15: Mangrol unit, Rajasthan (3.3mtpa) Exhibit 16: Satellite grinding unit at Aligarh, UP (1.5mtpa)

Source: Company Source: Company

Exhibit 17: Nimbahera Plant, Rajasthan (4.3mtpa) Exhibit 18: Gotan unit (0.5/0.6mtpa of grey/white cement)

Source: Company Source: Company

Exhibit 19: Captive power plant at Gotan unit (7.5MW) Exhibit 20: Use of robotics in operations

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 180
01 September 2021 JK Cement
Exhibit 21: White cement portfolio

Source: Industry, Systematix Institutional Research

Exhibit 22: Grey Cement portfolio includes premium products JK Super Strong & Weather Shield

Source: Industry, Systematix Institutional Research

Exhibit 23: Revenue mix: Grey & white cement Exhibit 24: EBITDA-mix: Grey & white cement

100 100
90 21 22 26 26 24 24 24 90
31 28 31 33 29 30 29 30 28 29 30
80 32 35 37
80 44
70 54 53 50 57
70 58 58
60 60
(%)

(%)

50 50
40 79 78 74 74 76 76 76 40
69 72 69 67 71 70 71 70 72 71 70
30 68 65 63
30 56
20 46 47 50 43
20 42 42
10 10
0 0
FY13

FY21
FY11

FY12

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY22E

FY23E

FY24E

FY16
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Grey Cement White Cement Grey Cement White Cement

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 181
01 September 2021 JK Cement
Exhibit 25: Management team details
Name Designation Qualification Background Other board memberships
Graduate from Joined JKCE in 2007 as Special Executive and received
1. JK Cement Works,
Mr. Raghavpat Sheffield Hallam training from industry stalwart Late Mr. Yadupati (Fujairah) FZC.
Managing Director
Singhania University, Singhania. He has been instrumental in charting out a
2. Yadu International Ltd.
England strategic roadmap to make JKCE future-ready.
Has led new capacity expansion projects that helped
[Link] in Electrical the company double its grey cement manufacturing 1. JK Cement Works,
Mr. Madhavkrishna Deputy Managing
& Computer capacity from 7.5mtpa in 2010 to ~15mtpa in 2020. (Fujairah) FZC.
Singhania Director & CEO 2. Yadu International Ltd.
Engineering He was instrumental in setting up the company's
maiden overseas plant in Fujairah, UAE.
1. JK Paints and Pigments
Bachelor of Arts
Ltd.
(Honors) degree in Oversees the finance & commercial matters (has 40+ 2. Jaykaycem (Northern)
Mr. Ajay Kumar Deputy Managing
Economics and years of experience in the field) of the company and
Saraogi Director & CFO Ltd.
Bachelor in Law has been a part of the core management team. 3. Yadu International Ltd.
(LL.B)
4. Jaykaycem (Central) Ltd.
Graduate of
Company Is associated with JKCE since 2008. He has over 20
Commerce & Law,
Mr. Shambhu Singh Secretary & years of post-qualification experience in legal, NIL
Company
Compliance Officer secretarial and indirect taxation matters.
Secretary
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 182
01 September 2021 JK Cement
Exhibit 26: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Key Risks YoY Growth
initiatives
 While the industry  Initiated steps for the  Process optimisation to  Extreme weather Volume (Grey): 7.3%
overcame the 2nd phase of wall putty improve operational conditions Revenue: 7.4%
demonetisation shock production capacity efficiency impacting
EBITDA: 43%
quicker than expected, the expansion from  Launched 'Project monsoon.
production levels of major 0.2mtpa to 0.4mtpa at PAT: 259%
Nirmaan' for better cost  Limestone
players have declined the Katni unit. management: 1) depletion.
after almost 15 years.  Clinker production Centralisation of
FY17  Higher energy
 Demand is likely to grow capacity increased by procurement, 2) costs.
at ~5.5% in FY18 due to 0.33mtpa at Rajasthan efficiencies in inventory
government initiatives to grey cement plants management.
boost infrastructure through the
activities viz., PMAY- debottlenecking
Gramin, coastal roads. process, taking the total
capacity to 5.45mtpa.
 The cement sector grew  Aims to double grey  Additional 13MW of  Higher inflation Volume (Grey): 11.5%
by 6% YoY in FY18 due to cement capacity to waste heat recovery rate. Revenue: 20.5%
higher infrastructure 18mtpa in 4-5 years. 1st plants to be installed in  Higher logistics EBITDA: 8.4%
spending by the phase - 4.2mtpa to be the upcoming plants. costs.
government & re- on stream by Mar'20 at PAT: 56%
 Reduced raw material  Increased
materialisation of demand a capex of Rs 20bn; 2nd utilisation. competition.
from the private sector. phase - greenfield
 JKCE was granted a  Higher raw
 Cement sector growth in project of 3.5mtpa at a
mining lease in MP for 2 material prices.
FY19 is likely to be high, capex of Rs 25bn by
mines with an
given a slew of FY23E.
estimated reserve of
FY18 infrastructure projects like 1st phase expansion ~518mt, providing an
Bharatmala, Smart Cities, includes 1) clinker opportunity for
PM Awas Yojana and capacity of 7,500 TPD at greenfield expansion up
Housing for All. Mangrol, 2) grinding to 15mtpa.
capacity of 1mtpa each
at Nimbahera &
Mangrol, 3) Split
grinding units of
1.5mtpa at Aligarh, UP
& 0.7mtpa at Balsinor,
Gujarat.
 Current demand drivers  To set up an integrated  Additional 13MW of  Regulatory Volume: 4.4%
are 1) the government’s plant with a 3.0- WHR plants to be compliance. Revenue: 8.5%
Housing for All scheme, 2) 3.5mtpa capacity at installed in the  Higher energy EBITDA: 6%
highway construction, 3) Panna, MP. upcoming plants. costs.
smart cities and 4) metro PAT: -12%
 Nimbahera Line-3 to  Plans to reduce logistics  Increase in raw
construction. increase clinker costs by installing an
FY19 material costs.
 Cement industry demand production by 1,000 overland belt conveyor
 Higher logistics
is expected to grow at 7% TPD – It is scheduled for in Maliakhera for
costs.
in FY20. completion by Dec'20. transporting limestone
 Commissioned the wall from Maliakhera and
putty unit at Katni Karunda mines.
(0.2mtpa).

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 183
01 September 2021 JK Cement

 Cement demand is likely  Commissioned 2.6mtpa  Improving thermal  Higher energy Volume (Grey): -1.5%
to contract by 10-15% in clinker production line efficiencies. costs. Revenue: 10.3%
FY21 due to COVID-19. at Mangrol and 3.5mtpa  Small steps in energy  Increase in raw EBITDA: 45%
 Demand should pick-up in of grey cement capacity savings like Kaizen in material costs.
(1mtpa each at PAT: 84%
2HFY21 with the pick-up various sections of  Higher logistics
in government Nimbahera & Mangrol production & process. costs.
infrastructure spending, and 1.5mtpa in Aligarh,
 Replacement of low-
affordable housing UP).
efficiency motors with
projects under PMAY  Balasinor spilt grinding high-efficiency motors.
FY20
(Urban & Rural) & unit (0.7mtpa) to be Replacement of high
Pradhan Mantri Gram commissioned by power consumption
Sadak Yojana. 3QFY21. Nimbahera lamps.
Line-3 upgradation to
be completed by FY21-
end.
 0.3mtpa wall putty
expansion should be
completed by 2QFY21.
 Cement demand for FY21  With the commissioning  Commissioned 16.85  Raw material Volume (Grey): 21.9%
was almost flat at of 0.7MnTPA Split MW Waste Heat
Grinding Unit at  Power & Fuel Revenue: 13.9%
328mtpa. Volume growth Recovery at Mangrol,
Balasinor (Gujarat), grey  Logistics EBITDA: 26.8%
of 9% is expected in FY22 cement capacity now taking its captive power
supported by a low base, stands at 14.67mtpa. capacity (including PAT: 50.8%
macro environment and WHR/Solar) to 144 MW.
 Modernisation &
increased government debottlenecking of  Waste Heat Recovery of
spending. Nimbahera Line-3 is 22MW would also be
 The industry should see a progressing well and is installed at the Panna
on track for completion
rebound based on the plant. Added 1 MW Solar
in 2QFY22. It would
volume growth driven by a result in additional Power Plant at Katni in
revival in demand from clinker output sufficient MP; with this, the solar
the housing & for producing 0.5mtpa power capacity stands at
FY21 infrastructure sectors and of cement. 1.45MW.
the timely release of funds  Initiated a greenfield  JKCE is using GPS-based
announced in the Union grey cement capacity
technology for tracking
Budget 2021-22; however, expansion of 4mtpa at
Panna, Madhya the movement of trucks,
this depends on the which helps in
Pradesh. This would
COVID trajectory and the have a clinker capacity optimizing network for
pace of vaccination. of 8,000 TPD, 2 MnTPA supply chain
cement grinding management.
capacity each at Panna
in Madhya Pradesh and
Hamirpur in Uttar
Pradesh. The project
would complete within
24 months of its start
date.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 184
01 September 2021 JK Cement

Investment Analysis
Capacity addition at regular intervals aided volume growth
JKCE is amongst the few mid-cap companies that have consistently added capacities
to support volume growth and geographical diversification. It commissioned a
6,500tpd (1.95mtpa) kiln in Mudhol, Karnataka in FY10; 5,600tpd (1.85mtpa) kiln at
Mangrol, Rajasthan plant in FY15 and 8,000tpd (2.64mtpa) kiln at Mangrol plant in
FY20. Between FY09-21, its grinding capacities increased at a CAGR of 10.4% YoY,
leading to a volume CAGR of 8.5% YoY in the same period.
Exhibit 27: Grey cement capacity increased by >3x over FY09-21… Exhibit 28: …aiding volume growth of 2.8x in the same period
16 14.7 80 12 25
14.0
14 70 10.3
10 20
60
12 10.5 10.5 10.5 10.5 10.5 8.2 8.6 8.4
50 15
10 8 7.4
6.9
6.3
(mtpa)

7.5 7.5 7.5 7.5 7.5 40 10

(mtpa)
(%)
8 5.6 5.4

(%)
30 6 5.1 5.3
6 4.3 5
4.5 20 3.8
4
4 0
10
2 0 2 -5
0 -10 0 -10
FY10

FY15
FY09

FY11

FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20

FY21

FY15
FY09

FY10

FY11

FY12

FY13

FY14

FY16

FY17

FY18

FY19

FY20

FY21
Installed capacities (mtpa) YoY growth (%) (RHS) Sales volume YoY growth (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Greenfield expansion in the Central region, higher limestone reserves provide

growth visibility
JKCE commissioned 3.5mtpa grinding capacity (1mtpa each at Nimbahera and
Mangrol, Rajasthan plants and 1.5mtpa in Aligarh, Western Uttar Pradesh) during
FY20 and 0.7mtpa grinding capacity in Balasinor, Gujarat in Oct-20.
In Feb’21, it announced plans to increase its clinker capacity by 8,000tpd (2.64mtpa)
at Panna, Madhya Pradesh and grinding capacity by 4mtpa (2mtpa of integrated
capacity and a split grinding unit of 2mtpa at Hamirpur, Uttar Pradesh).
The capex for this expansion project is estimated at Rs 29.7bn (USD 102/ton) and will
be funded through a mix of debt and equity (Rs 13bn). The higher capital cost is due
to the purchase of additional land (cost ~USD 30/ton) considering future expansions
(2-3 lines).
This unit will be eligible for incentives in Madhya Pradesh (75% of net state goods
and services tax-SGST reimbursement for 7 years) and Uttar Pradesh (200% of
eligible investment - Rs 2.5bn; maximum ceiling: 3x eligible investment, 70% of SGST
reimbursement for 12 years with a ceiling of 20% of investments every year).
The estimated limestone reserve in Panna is 518mt which provides expansion
opportunities of ~15mtpa (assuming average plant life of 30 years). The limestone
reserves at other locations are ~500mt, which may also provide growth
opportunities.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 185
01 September 2021 JK Cement
New capacity to boost volume growth
JKCE operated its old clinker plants in the Northern region at an utilisation rate of
95%+ in FY19/20 and hence, volume growth opportunities have been limited in the
absence of capacity expansions. Despite the COVID-19 disruptions and incremental
volumes from the expanded capacity in the Northern region, the average clinker
utilisation was 80%+ in FY21 and is expected to improve to 100% by FY23E. We
expect the company’s grey cement sales volumes to grow at a CAGR of 10.2% YoY
over FY21-23E. The completion of the Panna, Madhya Pradesh expansion is likely in
mid-FY24E, which should lead to volume growth of 7.6% YoY in FY24E and 10-11%
YoY till FY27E.
Exhibit 29: Improvement in clinker utilisation of its Northern Exhibit 30: Sales volume of grey cement to increase at a CAGR of
plants in FY19/20 10.2% over FY21-24E
120
15
95.7 98.3 99.5
100 94.8 13.8
14
83.5 81.4
80 12.8
13
11.9
12
(%)

60

(mt)
11
40 10.3
10
20
9
0
FY19 FY20 FY21 FY22E FY23E FY24E 8
FY21 FY22E FY23E FY24E
Clinker utilisation- North Sales volume

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Capacity and sales volume mix to improve in the Northern/Central regions

JKCE diversified its presence in the Southern region after the commissioning of a
greenfield plant in Mudhol, Karnataka in Sep-09. Cement prices in the Southern
region have remained volatile due to lower regional capacity utilisation. Going
forward, we expect clinker capacity utilisation to be higher in the
Northern/Central/Western regions, which should provide better pricing power to
cement manufacturers in these regions.
JKCE’s capacity mix in the Southern region has reduced to 20% vs. 40% in FY10 and is
likely to come down further to 16% post the commissioning of the Panna, Madhya
Pradesh plant. The production from its plant in South India has likely reduced to 16%
of the total sales volumes in FY21 vs. a peak of 32% in FY13. We expect the
production from this plant to be 17-18% of the total volumes till FY24E.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 186
01 September 2021 JK Cement
Exhibit 31: Capacity-mix improved in the Northern/Central regions Exhibit 32: Production-mix from the Northern/Southern/Central
regions
100 - 100 6
90 21 20 20 20 16 90
26 25 24 24 23
16 17 18
29 29 29 29 29 28 29 32 28 30 17
80 40 40 40 40 40 80
70 - - - - - 11 10 10 10 70
- 5 5 5 29
60 - - - - - 60
4
(%)

(%)
50 100 50
40 40 84 83 82
71 71 71 71 71 68 72 71 72 70 74 75 76 76 77 77
65 65 65 68
30 60 60 60 60 60 30
51
20 20
10 10
0 0

FY11

FY18

FY20E

FY21E

FY22E

FY23E

FY24E
FY12

FY13

FY14

FY15

FY16

FY17

FY19
FY10

FY19
FY09

FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18

FY20
FY21
FY22E
FY23E
FY24E
North West Central South North South Central

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

White cement business protects against earnings volatility

With a production capacity of 0.6mtpa of white cement and 1.2mtpa of wall putty,
JKCE is amongst the two largest players in this segment in India. The white cement
business is less volatile as compared to grey cement and provides earnings stability.
Between FY14-19 (before the profitability of JKCE’s grey cement business improved),
it contributed to 28-33% of total revenues while its contribution to EBITDA was 50-
58%. EBITDA contribution of this segment is estimated to be 37%/30% in FY20/FY21
and we expect it to contribute to 28-30% of the EBITDA till FY24E. The white cement
business also has much lower capex requirements vs. the grey cement business and
the higher cash flows in this segment have helped the company increase its grey
cement production capacities.
Exhibit 33: White cement segment to contribute to 25-26% of Exhibit 34: EBITDA contribution of white cement declined due
revenues to the improvement in grey cement volumes/profits

100 100
90 21 22 26 26 24 24 24 90
31 28 31 33 29 30 29 32 30 28 29 30
80 80 35 37
44 50
70 58 54 58 53 57
70
60 60
(%)

(%)

50 50
40 79 78 74 74 76 76 76 40
69 72 69 67 71 70 71 70 72 71 70
30 68 65 63
30 56
20 46 47 50 43
20 42 42
10 10
0 0
FY12
FY11

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY16
FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Grey Cement White Cement Grey Cement White Cement

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

The sales volumes of white cement (including wall putty) have increased at a CAGR
of 11.4% over FY10-21 while the EBITDA CAGR was 14% in the same period
(segmental break-up of EBITDA is not available after FY18). The OPM of this segment
has remained in the range of 25-30% over FY11-21. We expect sales volume/EBITDA
of the white cement segment to grow at a CAGR of 8.8%/9.5% over FY21-24E.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 187
01 September 2021 JK Cement
Exhibit 35: Estimate white cement sales volume CAGR of 8.8%... Exhibit 36: … and EBITDA CAGR of 9.5% over FY21-24E
2 18
1.7 7,001 25
2 16
1.6 6,001 20
14
2 1.4
1.3 1.3 12 5,001 15
1.3
1 10

(Rs mn)
1.2 4,001 10
(mt)

(%)

(%)
1.1
1 8
1.0 3,001 5
0.9 6
1 0.8 2,001 0
4
1 2 1,001 -5

1 0 1 -10

FY14

FY16

FY18
FY15

FY17

FY19

FY20

FY21

FY22E

FY23E

FY24E
FY18
FY14

FY15

FY16

FY17

FY19

FY20

FY21

FY22E

FY23E

FY24E
Sales volumes YoY chg (%) (RHS) EBITDA YoY chg (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Wall putty offers growth opportunities despite rising competition

UltraTech and JKCE are the two major white cement manufacturers in India. Wall
Putty has a market size of ~3.5mtpa, with UltraTech and JKCE having a market share
of 40%+. Paints manufacturers and a few unorganised players have entered the wall
putty business in the last few years. They are dependent either on domestic
manufacturers or imports for their white cement requirements. Despite the entry of
new players in wall putty manufacturing, JKCE witnessed double-digit volume growth
before the COVID-19 disruptions. We believe the company’s strong brand image and
distribution network (50,000+ dealers) would help it maintain its growth momentum.
The demand for wall putty continues to grow due to its longer life span, high
adhesiveness and water resistance characteristics. Wall putty is used for interior as
well as exterior applications. Home improvement activities and a decrease in the
repainting cycle should improve the demand for wall putty.
Introduced value-added products in the wall putty segment to gain competitive
advantage
To maintain/gain market share, JKCE launched value-added products in its white
cement portfolio - JK Cement WallMaxX, JK Cement GypsoMaxX, JK Cement
ShieldMaxX, JK Cement TileMaxX, JK Cement WhiteMaxX and JK Cement PrimaxX -
over the last few years. JK Cement ShieldMaxX, waterproof wall putty is
manufactured using German technology to improve the durability of paints. JK
Cement GypsoMaxX is a premium gypsum plaster made from natural gypsum. It is
suitable for application on internal surfaces, including walls and ceilings. JK Cement
PrimaxX is a white cement-based primer. It is used as an undercoat for exterior and
cementitious surfaces.
Exhibit 37: Value-added products in the white cement portfolio

Source: Industry, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 188
01 September 2021 JK Cement
Improved realisations, focus on cost efficiencies drive the grey cement segment
profits
Over the last two years, JKCE has benefitted from a) improved realisations in the
Northern, Karnataka and Maharashtra markets, b) a higher share of trade sales and
c) cost efficiency measures.
The price fluctuations in the Southern markets between FY16-19 had impacted the
profitability of its grey cement business. However, price increases in its key markets
over the last two years have improved the profitability of its grey cement segment.
Cement prices are up by 19-20% on average in the Northern and Karnataka markets
and by 9-10% in the Maharashtra markets in the last two years. This, along with
higher trade sales (67% from 60% earlier), has led to a 12% improvement in
realisations for the grey cement business over the last two years, resulting in
improved profitability. The EBITDA/ton of the grey cement business improved to Rs
858/Rs 1,010 in FY20/FY21 from Rs 396 in FY19.
Exhibit 38: Cement prices have increased over the last two years… Exhibit 39: …leading to an improvement in realisation…
390 4,800 15

370 4,600
4,400 10
350
(Rs/ton) 4,200
5
(Rs/bag)

330 4,000

(%)
310 3,800
0
3,600
290
3,400 -5
270
3,200
250 3,000 -10
FY16 FY17 FY18 FY19 FY20 FY21 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
North Bangalore (Karnataka) Maharashtra Realisation/ton (Grey Cement)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 40: …and thus improved profitability of the grey cement business
1,200
1,010
1,000
858
800
663 643
(Rs/ton)

600
484 460
396
400 306 296 332 319

200

0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

EBITDA/ton

Source: Systematix Institutional Research, Company; FY19-21 EBITDA/ton is based on our assumptions

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 189
01 September 2021 JK Cement
Rising share of new aged kilns to lower the energy requirements
JKCE’s new kilns are more efficient than the old kilns, leading to lower energy
consumption. The heat rate of the new kilns is 10-15% lower than that of the old
kilns. Besides that, modern plants consume 15-20% lower electricity than old plants.
Out of its total capacity, 32% of the kilns were commissioned before 2004, while the
rest after FY09. It is also renovating the kiln III at Nimbahera, Rajasthan which will
lead to a capacity increase of 20% (6,000tpd from 5,000tpd) and lower energy
requirements.
The company’s kiln heat rate has reduced by 6% while its power consumption has
declined by 20% from the FY09 levels. After the commissioning of its new plant in
Panna, Madhya Pradesh, the share of modern kilns will increase to 87% and reduce
its overall energy consumption further.
Exhibit 41: Decline in the heat rate of kilns Exhibit 42: Significant reduction in energy consumption

820 100
806
796 95 92 93 93 92
800 787 791 89 90 89 89
784 781 90 87 86
779 779
780 84
764 768 766 85
80
(kcal/kg)

(kwh/ton)
760
75 72
740 732
70
720 65
60
700
55
680 50
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY21 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY21

Grey cement (kcal/kg) Power consumption (kwh/ton)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Undertaking more cost-saving measures

The company hired consulting firm BCG to implement its cost-savings initiatives,
including the reduction in lead distance and energy requirements. We expect its cost
structure to improve further led by a) the completion of the modernisation of Kiln III
at Nimbahera - savings of ~Rs 200mn (Rs 74/ton for production from this kiln), b)
improved power generation due to the 16.85MW Waste Heat Recovery System
(WHRS) commissioned in Oct-20 - savings of ~Rs 340mn on a full-year basis and c) its
endeavour to reduce lead distance - savings of Rs 20-25/ton from the current levels.
The modernisation of Kiln III at Nimbahera, Rajasthan and power generation from
WHRS should lead to cost savings of Rs 30/ton+ on its aggregate sales volumes.
JKCE had a WHRS production capacity of 23.2MW in FY20, which has increased to
40.05MW after the commissioning of the 16.85MW capacity at Magrol, Rajasthan in
Oct-20. Green power (WHRS + solar power) fulfilled 25% of its power requirements
in FY21. We expect green power to contribute to 27%/25%/29% of the company’s
power requirements in FY22/23/24E. JKCE targets to meet 75% of its power
requirements from green power by FY30E, which will help in reducing carbon
emissions by 20%.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 190
01 September 2021 JK Cement
Exhibit 43: Plans to increase green power consumption… Exhibit 44: …which would lead to lower carbon emissions
80 75 700
70
600
60

(kg/ton of cement)
500
50
400
(%)

40
27 29 300
30 23 25 25
200
20

10 100

0 0
FY20 FY21 FY22E FY23E FY24E FY30E FY20 FY21 FY30E

Green power consumption CO2 emission

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Higher share of split grinding units helps to control freight costs

JKCE depends heavily on its split grinding units in the Northern region to cater to its
markets efficiently and control freight costs. About 59% of its capacity in the North
(including the grinding unit at Aligarh that gets clinker from its Rajasthan plants)
constitutes split grinding units. In the Central region too, 50% of its installed capacity
will comprise split grinding units.
Exhibit 45: Higher dependence on split grinding units in the Exhibit 46: 50% of the Central region capacity to be split grinding
Northern region units
North 70 65.6 Central (FY24E)
70
63
60 59 60
60
49.5 50.9 50.0
50 50

39 40
37
(%)

40
(%)

30 30
23.7

20 20

10 10

0 0
Shree UTCEM ACEM JKLC JKCE ACC Birla Corp Heidelberg UltraTech JKCE
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 191
01 September 2021 JK Cement

Financial Analysis
We expect JKCE’s grey cement sales volume to grow at a CAGR of 10.2% over FY21-
24E led by improvement in the capacity utilisation of its new plants. We expect its
capacity utilisation to improve to 80.8%/87.1% in FY22/23E and moderate slightly
thereafter to 82.5% in FY24E (considering expansions get completed in 1HFY24E).
The utilisation rate in FY20/21 was 73%-74% due to capacity expansions and COVID-
19-led disruptions. Its white cement and wall putty volumes are estimated to grow at
a CAGR of 8.8% between FY21-24E. We estimate a 2.6%/1% CAGR in grey/white
cement realisation over FY21-24E.
Exhibit 47: Expect 10.2%/8.8% CAGR in grey/white cement sales Exhibit 48: …coupled with a 2.2% CAGR in blended cement
over the next three years… realisation
25 14
21.9 13.2
20 12
11.4
10
15 15.4
8
11.5

(%)
(%)

10 8.7 6
7.7 7.6 2.9
5 6.0 4 2.8
7.9 4.4 4.1 6.5 6.0 2.4 2.5
1.3 2 1.6 0.7
0 1.4 1.0
(1.5) 0 1.8
(0.2) (0.7) (1.0)
-5 -2
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Grey cement vol. White cement vol. NSR Growth (Grey) NSR Growth (White)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Volume growth coupled with blended realisation CAGR of 2.2% over the next three
years will lead to revenue CAGR of 12.2% between FY21-24E.
Exhibit 49: Revenue to grow at a CAGR of 11.9% between FY21-24E

100 93.2 25%

90 21% 84.5
80 76.3 20%
70 66.1 16%
58.0 14%
60 52.6 15%
(Rs bn)

48.5
11%

(%)
50 10% 10%
40 9% 10%
30
20 5%
10
0 0%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Net sales YoY growth (%) (RHS)

Source: Company, Systematix Institutional Research

JKCE’s operating profit is likely to grow at a CAGR of 9.9% during FY21-FY24E led by
1) higher sales volumes/realisation, 2) up-gradation of its Nimbahera Kiln III and 3)
commissioning/ramp-up of its WHRS units and solar power plants. Its OPM increased

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 192
01 September 2021 JK Cement
to 20.9%/23.3% in FY20/21 from 15.9% in FY19 on a sharp improvement in grey
cement realisation (+13% YoY in FY20) and control on operating costs in FY21
(declined by Rs 340/ton). We expect OPM to be at 21.7% in FY22E due to higher
energy costs and an increase in variable costs (A&P, travelling and office expenses).
We have factored in OPM of 22%/21.9% in FY23/24E.
The company’s adjusted profits grew at a CAGR of 64% over FY19-21 led by strong
operating performance. We expect its adjusted profits to grow at a CAGR of 10.4%
over FY21-24E. Depreciation expense is likely to increase at a CAGR of 11% over
FY21-24E due to the ongoing capacity expansions. Interest expense should increase
to Rs 27.7bn in FY24E from Rs 25.3bn in FY21.
Exhibit 50: Estimate EBITDA CAGR of 9.9%... Exhibit 51: …and PAT CAGR of 10.4% over FY21-24E

25 25
23.3 12 100
21.7 22.0 21.9 79.2
20 20.9 10 80

20 55.6
8 50.8 60
(Rs bn)

15

(Rs bn)
(%)
16.2

(%)
15.9 6 40
10
15 4 13.9 20
9.8 7.7
5
2 (11.8) 0
7.9 8.3 12.1 15.4 16.6 18.6 20.4 3 3 5 7 8 9 10
0 10 0 -20
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) Adj. PAT YoY growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Better operating performance over the last two years has led to the company
recording its all-time high blended EBITDA/ton of Rs 1,322. We expect EBITDA/ton to
remain flat over FY21-24E led by a) higher costs and b) increasing share of grey
cement volumes.
Exhibit 52: Sharp improvement in EBITDA/ton in FY20/21

1,322
1,242

1,247
1,296
1,328
1,400 100

1,200 80
961

869

60
862

859

847
839

1,000
(Rs/ton)

40
637

800
606
550

(%)
20
476

600
0
400
-20
200 -40
0 -60
FY12

FY21
FY10
FY11

FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20

FY22E
FY23E
FY24E

Blended EBITDA/ton YoY change (%) (RHS)

Source: Company, Systematix Institutional Research

JKCE’s operating cash flow (OCF) increased at a CAGR of 50% over FY19-21 led by an
improvement in profits and a cumulative release of working capital of Rs 4.5bn. It

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 193
01 September 2021 JK Cement
generated a cumulative free cash flow (FCF) of Rs 22.6bn over FY16-21 despite a
capex of Rs 36.3bn in this period.
The improvement in profitability is likely to lead to a cumulative OCF of Rs 42.6bn
over FY21-24E. We expect it to continue to generate free cash despite its planned
capacity addition. Cumulative FCF is estimated to be Rs 5.1bn between FY21-24E.
Exhibit 53: FCF to be moderate given the commissioning of the Panna unit by 1HFY24E

20 10
15
5
10
5

(Rs bn)
0

(Rs bn)
0
-5 -5

-10
-10
-15
-20 -15
FY12

FY20
FY10
FY11

FY13
FY14
FY15
FY16
FY17
FY18
FY19

FY21
FY22E
FY23E
FY24E
CFO Capex FCF (RHS)

Source: Company, Systematix Institutional Research

JKCE has kept its leverage low over the last few years despite the recently completed
capacity expansion. While the gross debt of the company increased to Rs 32.8bn/Rs
33.8bn in FY20/FY21 from Rs 29.7bn in FY19, its net debt declined to Rs 20.5bn in
FY21 from Rs 26.5bn in FY20. It has been conserving surplus cash to iron out any
unfavourable situations arising out of the pandemic and preparing itself for the next
phase of capex. We expect its gross debt and net debt to peak at Rs 37.3bn and Rs
27.7bn respectively in FY23E considering its current capex plans.
During FY14-16, the company increased its grey cement capacity to 10.5mtpa from
7.5mtpa, but its net debt/EBITDA deteriorated due to a significant decline in the
profitability of its grey cement business. However, there has been an improvement
every year since FY16 with its net debt/EBITDA at 1.33x in FY21 vs. 5.7x in FY16. Net
debt/EBITDA is expected to be at 1.44x/1.49x in FY22/23E; however, it is likely to
improve to 1.32x in FY24E.
Exhibit 54: Gross debt to peak in FY23E Exhibit 55: Net debt/EBITDA improved over FY16-21

40 8.0
6.9
7.0 6.5
35
5.7
30 6.0

25 5.0
3.9
(Rs bn)

(x)

20 4.0
2.9
15 3.0 2.5
2.2
1.7 1.8 1.6
10 2.0 1.3 1.3 1.44 1.49 1.32
1.2
0.8 0.9
5 1.0 0.5 0.5 0.5 0.4
0 0.0
FY17
FY14

FY15

FY16

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY19
FY14

FY15

FY16

FY17

FY18

FY20

FY21

FY22E

FY23E

FY24E

Gross Debt Net Debt Net D/E Net Debt/EBITDA

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 194
01 September 2021 JK Cement
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

JKCE’s RoE improved to 21.6% in FY21 from 16.9% in FY20 led by a) an increase in
cement prices in the Northern and Central markets - Operating profit increased by
27% YoY, leading to an EBIT margin improvement of 2.7pp YoY and b) cost savings -
control on fixed and variable costs during COVID-19. We expect its RoE to be in the
17-20% range during FY22-24E.
Exhibit 56: RoE improved in FY19/20; expect it to remain at 17-20% till FY24E
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 76.6% 65.5% 66.0% 66.9% 66.4% 66.4% 66.4%
PBT/EBIT 72.0% 69.5% 79.4% 88.7% 89.8% 90.5% 91.0%
EBIT/Sales 11.5% 11.3% 16.0% 18.7% 17.6% 18.0% 17.5%
Asset turnover (x) 0.93 0.94 0.91 0.92 0.95 0.95 0.94
Assets/Equity (x) 2.84 2.39 2.22 2.13 1.97 1.86 1.75
ROE (%) 16.6 11.6 16.9 21.6 19.7 19.0 17.4
Source: Company, Systematix Institutional Research

The RoCE of the company improved by 200bps YoY in FY21 to 11.4% and we expect it
to remain at 11.4-11.6% in FY22-24E. Its RoIC improved by 220bps YoY in FY21 to
13.3% (400bps improvement over FY19-21) and we expect it to remain stable going
forward.
Exhibit 57: Return ratios to be range-bound over the next 2-3 years

25
21.6
19.7 19.0
20 17.4
16.6 16.9

15 13.3 13.1 12.8

11.6 12.1
11.1
(%)

10 8.0 8.3
11.4 11.2 11.3 10.9
9.4
5 8.0
6.8

0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
RoE RoCE RoIC

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 195
01 September 2021 JK Cement

Cash flow analysis & corporate governance

FCF generation: JKCE generated cumulative FCF of ~Rs 21bn between FY17-21.
FCF utilisation: Of the total FCF of Rs 21bn, it has paid ~21% (~Rs 4.5bn) towards
dividends (including dividend tax) over the past 5 years. Liquid assets of the company
have increased by Rs7.9bn in last 5 years (38% of FCF). Cumulative interest payment
in last 5 years is Rs20.7bn (66% of FCF).
FCF expectation: We estimate its FCF to decline to Rs 0.5bn FY22E while it is
expected to have a negative FCF of Rs 0.1bn in FY23E due to the capex requirement
for the Panna greenfield expansion. Post this expansion in 1HFY24E, we expect its
FCF to improve to Rs 4.7bn in FY24E.
Earnings quality: During the last 10 years, JKCE has earned a cumulative PAT of ~Rs
27bn against which it generated an OCF of Rs 74bn (2.8x of profits).
Exhibit 58: Expect Rs 5.1bn of free cash over FY22-24E Exhibit 59: Healthy cash flow quality

9 4 80 74 280
8 4 70
7 270
3 60 53

(Rs bn)
6 50 260
3
5 40 37
2
(Rs bn)

27 250
(%)

4 30
2 20
3 20 15
240
1 10
2
1 1 - 230
0 3Yrs 5Yrs 10Yrs
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Cumulative PAT
-1 -1 Cumulative OCF
FCF FCF yield (%) (RHS) Cumulative OCF as % of Cum. Pat- (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 60: Contingent liabilities

Contingent liabilities (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21
Demand from Competition Commission of India - 1,378 1,378 1,378 1,378 1,378
Excise Duty, CENVAT Credit, Service Tax, Income Tax, etc. claims 598 1,359 1,401 1,540 1,739 235
Claim against the company (includes show cause notices
1,752 1,634 2,235 2,524 2,517 694
pertaining to excise duty and others)
Others 691 784 777 851 992 3,890
Total 3,040 5,155 5,790 6,292 6,626 6,197
% of Net Worth 19% 30% 29% 23% 22% 18%
Source: Company, Systematix Institutional Research

Exhibit 61: Contingent liabilities

Other key monitorables FY16 FY17 FY18 FY19 FY20 FY21
Remuneration to CMD & KMPs (Rs mn) 93.1 150.2 170.9 241.6 276.7 241
% of PBT 10% 5% 4% 6% 4% 2%
Auditor's remuneration (Rs mn) 5.1 6 9.5 18.7 16.55 15.412
% of PBT 0.5% 0.2% 0.2% 0.5% 0.2% 0.1%
Pledged shares (%) NIL NIL NIL NIL NIL NIL
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 196
01 September 2021 JK Cement

Systematix vs. Consensus

Our revenue estimates are largely in-line with the Bloomberg consensus for next
three years; however, we are 6-12% below Bloomberg consensus. JKCE’s operating
profit is expected to grow at a CAGR of 12% between FY21-FY24E led by 1) higher
sales volumes/realisation, 2) up-gradation of its Nimbahera kiln-3 plant (FY22-end)
and 3) commissioning/ramp-up of its WHRS units and solar power capacity.
Exhibit 62: Bloomberg vs. our estimates (consolidated financials)
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 76 85 97
Systematix est. 76 84 93
% Difference 0% -1% -4%
EBITDA (Rs bn)
Consensus 18 20 23
Systematix est. 17 19 20
% Difference -6% -9% -12%
EBITDA Margin (%)
Consensus 23.1% 24.1% 24.1%
Systematix est. 21.7% 22.0% 21.9%
Difference (bps) (136.2) (209.0) (215.0)
Source: Bloomberg, Systematix Institutional Research

Exhibit 63: Key assumptions

Particulars FY19 FY20 FY21 FY22E FY23E FY24E
Sales volume (mt)-- Grey 8.6 8.4 10.3 11.9 12.8 13.8
Sales volume (mt)-- White 1.3 1.3 1.3 1.4 1.5 1.6
Blended Realization (Rs/ton) 4,001 4,527 4,495 4,626 4,736 4,852
Per ton costs (Rs)
Raw material 898 891 920 864 916 947
Employee cost 407 466 397 424 420 411
Power & Fuel 1,123 1,120 1,001 1,098 1,079 1,119
Freight 1,142 1,128 1,118 1,170 1,231 1,270
Other expense 921 1,090 917 934 958 986
Total Cost 4,491 4,694 4,353 4,490 4,604 4,733
Blended EBITDA/ton 847 1,242 1,322 1,247 1,296 1,328
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 197
01 September 2021 JK Cement

Key Risks
1) Weak operating performance and financial risk profile of JK Cement Works,
(Fujairah), FZC: JKCWF has reported net loss since the commencement of
operations (loss of AED 47.6mn/AED 37.2mn in CY20/19). JKCE recognised a
provision towards a diminution in the carrying amount of investment of Rs 3.5bn
in FY20/21. The operating levels have remained relatively low due to weak
demand in the Gulf countries. JKCWF has remained dependent on the infusion of
funds from JKCE for meeting its near-term debt obligations. Being the corporate
guarantor, JKCE plans to repay Rs 3.87bn of debt in the next two years. Any
further fund infusion will have a negative bearing on the financials of JKCE.
2) Lower cement prices in the Southern region: Historically, cement prices have
remained volatile in the Southern region due to lower capacity utilisation of the
existing units. We have assumed a better pricing scenario considering
additional/sustainability of FY21 price hikes. Lower-than-estimated cement
prices will adversely impact our earnings estimates.
3) Inflationary pressures in fuel costs: There has been a sharp increase in the
prices of pet coke, coal and diesel in the last few months. The price of pet coke is
up ~75% over the last year while imported coal price has increased by 30%+.
Current pet coke prices are up ~40% vs. the 4QFY21 consumption price. Though
cement companies are trying to control energy costs by changing their fuel mix
(lower usage of pet coke and Australian coal), continued escalation in coal/pet
coke prices could impact our earnings estimate if the industry is unable to pass
on the cost increases to consumers.
4) Prolonged pandemic-related restrictions/lockdowns: We estimate JKCE to
report grey/white cement volume growth of 15.4%/6.5% in FY22E; however,
continued localised lockdowns in the country could act as a downside risk to our
estimates. Besides hurting demand, lockdowns/restrictions impact the
mobilisation of labour at construction sites, thus delaying the process. However,
we derive confidence from the vaccination pace in India and believe economic
recovery and normalcy will be attained from 2HFY22E onwards.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 198
01 September 2021 JK Cement

Valuation and View

A consistent increase in capacity has helped JKCE to increase its sales volumes. Its
grey cement production capacity increased at a CAGR of 12.6% over FY19-21 while
sales volumes grew at a 10.5% CAGR. It plans to increase its grey cement capacity to
18.7mtpa by FY24E from 14.7mtpa in FY21. Higher limestone reserves in Panna,
Madhya Pradesh will help in achieving its production capacity target. Its presence in
the white cement segment provides sustainability to cash flows and has enabled it to
increase its grey cement production capacity.
The company has witnessed a significant multiple re-rating after a) the completion of
the QIP in Dec’18 to fund its expansion projects, b) improvement in profitability of
the grey cement segment in FY20/21 (which had been a concern), c) improved
balance sheet position despite the completion of its 4.7mtpa grey cement capacity
recently and d) announcement of the next leg of growth capex without increasing
the leverage on its balance sheet.
Exhibit 64: JKCE has been amongst the best performing cement stocks

Source: Company, Systematix Institutional Research

JKCE trades at 16.6x/15.1x/13.6x FY22/23/24E EV/EBITDA and USD 221/224/181

FY22/23/24E EV/ton. The stock has traded at an average EV/EBITDA of 10.8x in the
last 7 years though its multiple re-rated to ~14x in the last few months. With the
improvement in profitability (EPS expected to grow at a CAGR of 10.4% over FY21-
24E), stable return ratios and strong balance sheet, we expect the stock to sustain its
higher-than-historical multiples. We value it at 14x FY23E EV/EBITDA (adjusted for
CWIP as capacity expansion will get completed in FY24E) to arrive at a target price of
Rs 3,160. We initiate coverage on the stock with a HOLD rating. At our TP, the stock
will trade at 14.6x/13.2x FY23/24E EV/EBITDA and USD 217/176 FY23/24E EV/ton.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 199
01 September 2021 JK Cement
Exhibit 65: 1- year forward EV/EBITDA Exhibit 66: 1-year forward EV/ton
16 240
210

12 180

(US$/ton)
150
120
(x)

8
90

4 60
30

0 0

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-17

Aug-21
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20
1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 200
01 September 2021 JK Cement

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 58,016 66,061 76,345 84,453 93,221 Share Capital 773 773 773 773 773
Growth (%) 10.3 13.9 15.6 10.6 10.4 Reserves 29,504 36,595 43,217 51,422 60,144
Total Expenditure 45,881 50,674 59,751 65,902 72,794 Shareholders Fund 30,277 37,367 43,990 52,195 60,916
EBITDA 12,135 15,387 16,594 18,551 20,427 Debt 32,840 33,759 33,759 37,259 35,759
Growth (%) 45.4 26.8 7.8 11.8 10.1 Net deferred tax 4,173 5,930 5,930 5,930 5,930
EBITDA margin (%) 20.9 23.3 21.7 22.0 21.9 Total Liabilities 67,086 76,799 83,421 95,126 102,347
Depreciation 2,880 3,062 3,132 3,337 4,139 Net Fixed Assets 55,545 59,374 64,335 71,998 89,859
EBIT 9,255 12,325 13,462 15,214 16,289 Capital WIP 5,295 5,093 8,000 12,000 1,500
Interest 2,764 2,528 2,567 2,696 2,774 Investments 458 1,422 1,422 1,422 1,422
Other income 853 1,130 1,190 1,250 1,312 Current Assets
PBT 7,345 10,927 12,085 13,767 14,827 Inventories 6,904 7,566 7,998 8,591 9,005
Tax 2,630 3,675 4,065 4,631 4,987 Sundry Debtors 2,677 3,615 3,902 4,075 4,381
Tax rate (%) 35.8 33.6 33.6 33.6 33.6 Cash & Bank balances 6,345 12,246 8,816 8,550 7,872
Rep PAT 4,965 7,086 8,020 9,136 9,839 Loans & Advances 6,916 8,104 8,544 8,844 9,328
Net Profit Margin 8.6 10.7 10.5 10.8 10.6 Total Current Assets 24,122 32,831 30,559 31,359 31,885
Adj PAT 4,846 7,306 8,020 9,136 9,839 Total Current Liabilities 18,334 21,921 20,895 21,653 22,319
Growth (%) 79.2 50.8 9.8 13.9 7.7 Net Current Assets 5,788 10,909 9,664 9,706 9,566
Source: Company, Systematix Institutional Research Total Assets 67,086 76,799 83,421 95,126 102,347
Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PBT & extraord. Items 7,345 10,927 12,085 13,767 14,827 Profitability Metrics
Add: Depreciation 2,880 3,062 3,132 3,337 4,139 EBITDA margin (%) 20.9 23.3 21.7 22.0 21.9
Add: Interest 1,975 1,666 2,567 2,696 2,774 EBITDA per Tonne (Rs) 1,242 1,322 1,247 1,296 1,328
Operating cashflow 12,379 16,146 17,784 19,801 21,740 Return Ratios
Net CFO 13,668 15,903 11,534 14,862 16,214 RoE (%) 16.9 21.6 19.7 19.0 17.4
Capital expenditure (12,428) (7,678) (11,000) (15,000) (11,500) RoCE (%) 9.4 11.4 11.2 11.3 10.9
Others (2,338) (5,759) - - - RoIC (%) 11.1 13.3 13.1 12.8 12.1
Net CFI (14,765) (13,437) (11,000) (15,000) (11,500) Solvency Ratio
Net free cash flows 1,241 8,224 534 (138) 4,714 Net D/E (x) 0.87 0.55 0.54 0.53 0.44
Debt change 3,133 1,154 - 3,500 (1,500) Per share (Rs)
Interest paid (2,507) (2,525) (2,567) (2,696) (2,774) Basic EPS- reported 64.3 91.7 103.8 118.2 127.3
Net CFF (1,082) (1,375) (3,965) (128) (5,392) CEPS 101.5 131.3 144.3 161.4 180.9
Net change in cash (2,179) 1,091 (3,430) (266) (678) BVPS (Rs) 391.8 483.6 569.3 675.5 788.4
Closing Cash Balance 6,345 12,246 8,816 8,550 7,872 Valuations Metrics
Source: Company, Systematix Institutional Research P/E (x) 50.8 35.6 31.4 27.6 25.6
EV/EBITDA (x) 22.9 17.7 16.6 15.1 13.6
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 201
 Systematix
Institutional Equities

The Ramco Cements 01 September 2021

Making inroads into the East, sheds its regional tag

INITIATING COVERAGE The Ramco Cements Ltd (TRCL) is the second-largest cement player in South India
Sector: Cement Rating: BUY and has diversified its presence in the East over the last few years. Higher sales in
the Eastern markets improved its clinker utilisation to 75% in FY21 (90% in FY20)
CMP: Rs 1,008 Target Price: Rs 1,205
vs. the industry average of ~49%. Clinker capacity addition of 37% by 1HFY22 will
Stock Info strengthen its position in the East. We expect a sales volume CAGR of 14.6% over
Sensex/Nifty 57,552/17,132 FY21-24E with increase in sales-mix in the Eastern region (34% in FY24E vs. 28% in
Bloomberg TRCL IN FY21). TRCL is a pioneer of new technologies like a) limestone beneficiation plant
Equity shares 236mn and b) use of surface miners. Lower kiln rate vs. peers, higher dependence on
52-wk High/Low Rs 1,131/681 captive power and better infrastructure helps it minimize costs. We expect its
Face value Rs 1 EBITDA/EPS to grow at a CAGR of 13.4%/17.5% over FY21-24E. An improvement in
M-Cap Rs 238bn/USD 3.2bn its balance sheet (net Debt/EBITDA at 0.5x in FY24E vs. 1.9x in FY21) and return
3-m Avg volume USD 8.31mn ratios should help it trade at higher multiples. We initiate coverage on the stock
Financial Snapshot (Rs bn) with a BUY rating and a target price of Rs 1,205 (an upside of 19.5% from the CMP).
Y/E March FY22E FY23E FY24E
Higher utilisation in an oversupplied market; expansions to aid growth
Sales 60 69 80
EBITDA 17 19 22
TRCL has diversified its presence in the East with the region now accounting for ~28%
PAT 8 9 12
of its sales volumes. The diversification led to a clinker capacity utilisation of 75% in
EPS (Rs) 33 38 51
PE (x) 30 26 20 FY21, which is significantly above the average industry clinker utilisation of ~49% in
EV/EBITDA (x) 16.1 14.0 11.2 the Southern region. Its on-going capacity expansion should be complete in 1HFY22
RoE (%) 13.1 13.5 15.7 and the overall sales volume is estimated to grow at a CAGR of 14.6% over FY21-24E
RoCE (%) 12.9 13.8 17.2 with the Eastern region contributing to 34% of its volumes by FY24E.
Dividend yield (%) 0.3 0.4 0.4
Superior cost structure; debt peaked out in FY21 given the current capex
Shareholding pattern (%)
Jun-21 Mar-21 Dec-20 TRCL has a better cost structure than most of its peers given a) lower kiln rates -
Promoter 42.5 42.5 42.6 687kcal vs. the industry average of 730kcal, b) higher dependence on captive power
–Pledged 12.2 13 12.4 sources - 88-89% of requirements and c) better infrastructure - railways sidings at
FII 8.6 8.3 8 most plants and wagon tipplers. The commissioning of the WHRS, grinding capacity
DII 22.3 23.2 22.9 in Odisha and new clinker plants should improve the cost structure further. The
Others 26.5 26 26.5 company’s debt has peaked out in FY21; we expect net debt to be at Rs9.1bn in
FY24E vs. Rs27.6bn in FY21.
Stock Performance (1-year)
1200
Earnings and return ratios to improve; initiate with Buy
1100
1000
900
The stock trades at 16.1x/14x/11.2x FY22E/23E/24E EV/EBITDA and USD
800 180/175/161 FY22E/23E/24E EV/ton. It has traded at an average EV/EBITDA of 13.7x
700
600 in the last seven years. With the improvement in profitability (estimate EPS CAGR of
500 17.5% over FY21-24E), return ratios (RoE to be at 15.7% in FY24E vs. 14% in FY21)
400
and a stronger balance sheet (net Debt/EBITDA at 0.5x in FY24E vs. 1.9x in FY21), we
Dec-20
Nov-20

Jan-21
Aug-20

Sep-20

Feb-21
Mar-21

Apr-21

Jul-21

Aug-21
Oct-20

May-21

Jun-21

expect TRCL to trade at higher multiples. We value it at 16.5x FY23E EV/EBITDA to

Ramco Sensex arrive at a target price of Rs 1,205 (an upside of 19.5% from the CMP) and initiate
coverage with a BUY rating.
Sanjeev Kumar Singh
sanjeevsingh@[Link]
+91 22 6704 8017

Rahul Jain
rahuljain@[Link]
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 202
01 September 2021 The Ramco Cements

Story in charts
Exhibit 1: Capacity share in the Southern region Exhibit 2: Clinker utilisation moderated to 75% in FY21 due to
COVID disruption
14 14 120

97.5
96.2

87.5
11.6

89.9
87.0
12 12

85.3

75.2
100

82.2
78.8

74.8

74.6
71.5

70.9

70.6
9.3 10

69.1
10
80

62.0
61.6

60.0
58.3
7.9
7.3 8

(mtpa)
8

(%)
60
(%)

5.7 6
6
4.1 3.9 40
4 4

2 20
2
0 0
0

FY17
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
ACC Chettinad UltraTech India Kesoram Ramco Zuari
Cements Clinker production (mtpa) CU (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 3: Exposure to the Eastern markets should increase Exhibit 4: TRCL’s variable cost is on the lower side vs. peers
going forward
100 2,500
90 18 2,006
28 34 1,922 1,868
80 2,000 1,818 1,835
12 1,719 1,668
70 1,502
10 10 1,500 1,381
(Rs/ton)

60 11
9 1,084
(%)

50 20 10
18 1,000
40 15
30 500
20 40 35 30
10 0
ACC

SRCM

BCORP

JKLC

Dalmia
JKCE

ICEM
TRCL
UTCEM

ACEM
0
FY16 FY21 FY24E
Tamil Nadu Kerala Karnataka Andhra Pradesh East markets FY21

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: Kiln heat rate is lower than peers Exhibit 6: Captive power plants fulfill 89-90% of power
requirements
750 742 91
89.9
740 90 89.7
730 721 90
718 88.7
720 89
(kcal/ton of clinker)

710 89
(%)

700 88
690 88
680 87.0
680 87
87
670
86
660
86
650
FY18 FY19 FY20 FY21
640
TRCL ACC SRCM UTCEM Power generation from Captive plants

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 203
01 September 2021 The Ramco Cements

Exhibit 7: Net debt/EBITDA peaked in FY20 with the current Exhibit 8: Return ratios to improve over FY21-24E
phase of capacity expansion
5 4.6 20
18.0
5 18 17.2 16.9
4 15.7
3.4 16
4 14.0
14 12.9 13.0
3 11.9 11.9
2.4 12
(x)

(%)
1.8 1.8 10
2 1.6
1.3 8
2 1.0 1.1
0.8 6
1
1.2 4
1 1.0 0.4
0.7 0.5 0.5 2
0 0.2 0.3 0.6 0.3 0.3 0.1
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E 0
RoE RoCE RoIC
Net D/E Net Debt/EBITDA FY19 FY21 FY24E

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Estimate EBITDA CAGR of 17.3% between FY21-24E Exhibit 10: FCF to rise on robust OCF and completion of the
ongoing capex cycle
25 35%
25 15
29.1% 27.7%
27.5% 26.9% 30% 20
20 15 10
25.0%
25% 10
20.1% 21.2% 5
15 5
(Rs bn)

20%
(Rs bn)

0 0
(%)

(Rs bn)
22.3 15% -5
10 -5
18.5 -10
15.3 16.6
10%
-15
5 11.0 10.4 11.4 -10
5% -20
-25 -15
FY13
FY10
FY11
FY12

FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
0 0%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) CFO Capex FCF (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1-year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
20 190

170
15
150
(US$/ton)

130
(x)

10
110

5 90

70
0 50
Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-12
Aug-09

Aug-10

Aug-11

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 204
01 September 2021 The Ramco Cements

Company Background
The Ramco Cements Limited (TRCL) is the flagship company of the Ramco Group,
Ramco Cements derives 70%+ of its headquartered in Chennai. The main product of the company is Portland cement,
revenue from the Southern region and
manufactured in ten state-of-the-art production facilities that include integrated
the rest from the Eastern region. It is the
th cement plants and grinding units with a current total production capacity of
7 largest cement player in India and the
nd 19.4mtpa (includes split grinding units of 7.3mtpa). TRCL has a clinker production
2 largest in the South.
capacity of ~10mtpa (3.1mtpa in Andhra Pradesh and rest in Tamil Nadu) which
would increase to 13.66mtpa post the on-going expansions (2.25mtpa in Andhra
Pradesh and 1.5mtpa in Tamil Nadu).
TRCL enjoys strong brand equity in South India and derives 70%+ of its revenue from
Andhra Pradesh, Telangana, Karnataka, Tamil Nadu & Kerala; the Eastern region
(West Bengal & Odisha) contributes the balance. TRCL has also started supplying to
the North-Eastern markets, albeit at lower volumes (~0.1-0.2mt). The company also
produces Ready Mix Concrete and Dry Mortar products. It has captive thermal and
windmill capacities of 175MW and 125.95MW (119.5MW in Tamil Nadu and 6MW in
Karnataka), respectively. It has two subsidiaries, Ramco Windfarms (with a 39.8MW
windmill capacity) and Ramco Industrial and Technology Services (into transport,
manpower services and IT).
It has been a pioneer and industry leader in introducing new technologies such as 1)
installation of an optical sorter at its Pandalgudi mines to beneficiate the limestone;
2) limestone washery at the Alathiyur plant which helps to reclaim and utilise low-
grade limestone; 3) use of a surface miner for its limestone mining operations in
Alathiyur. The noise and pollution-free mining process does not require drilling,
blasting etc.
The company has introduced several products with a focus on providing ‘different
cement for different applications’. It manufactures 12 types of cement including
three varieties for individual housing. It has an active network of more than 3,000
dealers and sub-dealers.
Exhibit 13: Production capacity of TRCL along with the attached infrastructure
Integrated plants State Region Clinker (mtpa) Cement (mtpa) CPP (MW) WHRS (MW) Railway Siding Wagon Tipler
Ramasamy Raja Nagar Tamil Nadu South 1.1 2.0 25 3 Y
Jayanthipuram Andhra Pradesh South 4.6 3.7 42 27 Y Y
Alathiyur Tamil Nadu South 2.4 3.1 42 7 Y Y
Ariyalur Tamil Nadu South 3.3 3.5 66 Y Y
Kurnool Andhra Pradesh South 2.3 1.0 18 12 Y Y
Total 13.7 13.2 193 49
Grinding units
Kancheepuram Tamil Nadu South 0.5
Salem Tamil Nadu South 1.6
Kolaghat West Bengal East 2.0 Y
Vizag Andhra Pradesh South 2.0 Y Y
Kharagpur West Bengal East 0.2
Haridaspur Odisha East 0.9 Y Y
Grinding units- total 7.2
Total capacity 13.7 20.4
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 205
01 September 2021 The Ramco Cements

Manufacturing facilities
Exhibit 14: Jayanthipuram, Andhra Pradesh (3.7mtpa) Exhibit 15: Ariyalur Unit I & II, Tamil Nadu (3.5mtpa)

Source: Company Source: Industry Database

Exhibit 16: Alathiyur unit, Tamil Nadu (3.1mtpa) Exhibit 17: Kolaghat unit, West Bengal (2mtpa)

Source: Company Source: Company

Exhibit 18: Vizag unit, Andhra Pradesh (2mtpa) Exhibit 19: Kurnool, AP greenfield expansion

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 206
01 September 2021 The Ramco Cements
Exhibit 20: Product profile and their application

Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 207
01 September 2021 The Ramco Cements
Exhibit 21: Management team details
Name Designation Background Other board memberships

1. Ramco Industries Ltd

Has been on the board of Ramco Cements since 1985; has 30+
Mr. P.R. Chairman and 2. Ramco Systems Ltd
years of industrial experience with specific knowledge in
Venketrama Raja Managing Director 3. Rajapalayam Mills Ltd
textiles, cement & information technology sectors.
4. The Ramaraju Surgical Cotton Mills Ltd

Joined the company when it had a single manufacturing unit; is

Mr. A.V. Chief Executive responsible for introducing data-driven decision-making and
NIL
Dharmakrishnan Officer management control systems across all layers of the
organisation.

Mr. S. Chief Financial Responsible for project financial planning, tax planning, internal
NIL
Vaithiyanathan Officer controls, commercial and logistics operations of the company.

With the rapid expansion in the manufacturing capacity of the

Mr. Balaji K Executive Director
company, he is responsible for creating various new markets in NIL
Moorthy – Marketing
Karnataka, Odisha, West Bengal, etc.

Heads the manufacturing team and is responsible for

Executive Director
Mr. M. Srinivasan production, quality control and research & development NIL
– Operations
activities.
Heads the secretarial and related compliance functions of the
Mr. K. Company
company. He handles meetings and all in-house share-related NIL
Selvanayagam Secretary
matters including connectivity with NSDL and CDSL.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 208
01 September 2021 The Ramco Cements

Exhibit 22: Annual report highlights

Operational efficiency
Year Demand Scenario & Outlook Expansion plan Key Risks YoY Growth
initiatives
 Demonetisation impact was  Installation of 6MW captive  Transportation of clinker  Raw material price Volume: 16%
minimal due to Ramco's digital power plant at from cement plants to hike Revenue: 10.5%
payment system for a decade. Jayanthipuram unit to be grinding unit in West  Fuel price rise EBITDA: 11.5%
 Demand outlook for TRCL is completed in FY18; the Bengal by sea route. PAT: 19.7%
FY17  Currency volatility
positive given 1) healthy 6MW captive plant at  Power generated from CPP
monsoon, 2) GST adoption and 3) Alathiyur was commissioned for self-consumption.
liquidity improvement post in 3QFY17.
demon.
 Scarcity of sand and muted  To set up clinker- Line III at  Started to use alternate  Raw material price Volume: 11.5%
demand in Tamil Nadu led to soft the existing Jayanthipuram fuel to reduce raw material hike Revenue: 11.6%
volume growth in FY18. plant with a capacity of cost.  Fuel price rise EBITDA: -8%
 Demand picked up from 2HFY18 1.5mtpa.  Exploring ways to minimise PAT: -14.4%
 Currency volatility
FY18 and is expected to continue in  Plan to commission the impact of pet coke and
FY19 led by 1) investment in the grinding unit at Odisha coal cost.
agriculture sector, 2) healthy (0.9mtpa), West Bengal
monsoon, 3) adoption of GST. (1.1mtpa) & Andhra
Pradesh (1.1mtpa).
 Affordable housing is the primary  To set-up clinker-line III at  The upcoming grinding  Fuel prices Volume: 19.5%
demand driver, supported by the the existing Jayanthipuram units will enable TRCL to  Depletion of Revenue: 16.8%
infrastructure segment. plant with 1.5mtpa capacity economise its limestone reserves EBITDA: -5.7%
 Cement demand is expected to and a greenfield unit at transportation costs as they for the industry. PAT: -9%
grow at ~8% in FY20. Kurnool with are located near fly-
clinker/cement capacity of ash/slag sources.
FY19 2.25mtpa/1.0mtpa.  Plans to install WHR plants
 Plan to commission at the existing
grinding unit at Odisha Jayanthipuram and Kurnool
(0.9mtpa), West Bengal units.
(1.1mtpa) & Andhra
Pradesh (1.1mtpa).
 Industry to see revival from  The 1.5mtpa/2.25mtpa  Aims to commission WHR  Fuel availability Volume: 0.7%
2HFY21 led by key infrastructure Jayanthipuram/Kurnool plants at Jayanthipuram  Currency volatility Revenue: 4.3%
projects like roads, irrigation, clinker units to be (27MW) & Kurnool EBITDA: 9.7%
metros & rural housing as per commissioned by 4QFY21. (12.15MW) by 4QFY21.  Demand-supply PAT: 18.8%
FY20 the PMAY scheme. mismatch
 Plan to commission Jajpur,  Higher use of sea freight to
 Overall cement demand is likely Odisha grinding unit transport RM across
to contract by ~15% in FY21 due (1mtpa) by Aug'20. Southern & Eastern coastal
to COVID-19-led issues. belt.
 Cement volume for the industry  The Line– III clinkerisation  Aims to ramp-up the  Fuel availability and Volume: -11%
is estimated to decline by 2% YoY project (1.5mtpa) at recently commissioned prices risk Revenue: -2.3%
as a swift recovery in 4QFY21 Jayanthipuram and Phase-3 WHR plants at  Market risk EBITDA: 34.3%
compensated for the 31% decline of the Waste Heat Recovery Jayanthipuram. PAT: 23.1%
in volume witnessed in 1QFY21. System with a capacity of  Information
 Use of industrial wastes in Technology Risk
 The industry is set to hit a 9MW are scheduled to be manufacturing.
decadal high volume growth of commissioned by end of
20% in FY22 aided by an June 2021.
expected revival in demand from  Kurnool Project: The
FY21
the infrastructure & urban 2.25mtpa clinker unit is
housing sectors in line with the now scheduled for
~26% increase in budgetary commissioning in Sep'21.
allocation for infrastructure in The Cement Mill (1mtpa),
the Union Budget 2021-22. Waste Heat Recovery
System (12.15MW) and
Thermal Power Plant
(18MW) are scheduled for
commissioning in FY23.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 209
01 September 2021 The Ramco Cements

Investment Analysis
Second-largest player in the South
With a grinding capacity of 16.3mtpa, TRCL is the second-largest player in the
Southern region. It also has split grinding units of 3.1mtpa in the East. Its clinker units
have a production capacity of ~10mtpa (3.1mtpa in Andhra Pradesh and the rest in
Tamil Nadu); this would increase to 13.66mtpa post the completion of the on-going
expansions (2.25mtpa in Andhra Pradesh and 1.5mtpa in Tamil Nadu).
Exhibit 23: Capacity share in the Southern region
14
11.6
12

10 9.3
7.9
(%) 8 7.3
5.7
6
4.1 3.9
4

0
ACC Chettinad UltraTech India Kesoram Ramco Zuari
Cements
Source: Company, Systematix Institutional Research

Clinker capacity utilisation reached 90% in FY20 in an oversupplied market

TRCL announced expansion plans as its clinker capacity utilisation had started to
improve from FY18. Its clinker capacity utilisation increased to 90% in FY20 vs. 60% in
FY17. Clinker utilisation declined to 74.6% in FY21 due to COVID-19-induced demand
pressure in the Southern/Maharsahtra markets. We believe that the average
industry clinker utilisation in the South was 58%/49% in FY20/21. Higher clinker
utilisation along with improving sales in the East (Kolaghat, West Bengal reached
100% capacity utilisation) prompted the company to announce capacity expansion
plans in FY18.
Exhibit 24: Clinker capacity utilisation reached 90% in FY20 in an oversupplied market
14 120
97.5
96.2

87.5
89.9
87.0

12
85.3

75.2

100
82.2
78.8

74.8

74.6
71.5

70.9

70.6

10
69.1

80
62.0
61.6

60.0
58.3

8
(mtpa)

(%)

60
6
40
4

2 20

0 0
FY17
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E

Clinker production (mtpa) CU (%) (RHS)

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 210
01 September 2021 The Ramco Cements
Capacity expansion plans to aid growth…
TRCL added clinker capacities at a conservative rate of 3% CAGR between FY11-21
(2.6mtpa clinker capacities were added in this period), in-line with regional capacity
increase. In Nov-09, a new kiln of 1600 tpd capacity with better heat and power
consumption was commissioned at its R R Nagar plant after scrapping the old kiln of
1,200 tpd capacity that was commissioned in 1977. Further, the capacity of the Kiln 2
at R R Nagar was upgraded from 1150 tpd to 1,350 tpd by modifying the pre-heater
fan and clinker cooler. In Aug’11, clinker capacity at the Ariyalur plant was increased
by 1.65mtpa. Between FY12-21, clinker capacity was increased by only 1mtpa
through de-bottlenecking.
The company started to focus on split grinding units to reduce freight costs and cater
to the Eastern region. It commissioned three grinding units with an aggregate
capacity of 1.95mtpa (0.5mtpa capacity each in Kancheepuram and Salem districts in
Tamil Nadu and 0.95mtpa in Kolaghat, West Bengal) during FY10. The capacity of the
Salem grinding unit was increased to 1.6mtpa in FY13 by installing a roll press mill
and during FY15, another grinding unit in Vizag was commissioned.
TRCL announced its plans to increase its clinker capacity at the Jayanthipuram,
Andhra Pradesh plant by 1.5mtpa along with WHRS of 27MW and grinding capacity
expansion by 1.05mtpa at its Kolaghat, West Bengal and Vizag, Andhra Pradesh units
in FY18. In FY19, it announced a greenfield plant with a clinker/cement capacity of
2.25mtpa/1mtpa at Kurnool, Andhra Pradesh. The cement produced at the grinding
units would help TRCL expand its footprint in the coastal districts of Andhra Pradesh
and the states of Odisha, Jharkhand and West Bengal. It has set up vertical mills that
can handle wet slag (the cost of dry slag is higher and availability is also low). Slag is
available at a distance of 30-50kms in Kolaghat, Vizag and Haridaspur grinding units.
Exhibit 25: Status of clinker expansion/integrated plant
Integrated Clinker Cement Project cost
Infrastructure Project status
plants (mtpa) (mtpa) (Rs bn)
Expected to get commissioned soon,
Jayanthipuram 1.5 - 7.4 27MW WHRS
WHRS of 18MW commissioned
12.15MW WHRS, 18MW CPP and Railway Clinker plant by 2QFY22, grinding unit,
Kurnool 2.3 1.0 16
Siding CPP and WHRS in FY23E
Source: Company, Systematix Institutional Research

Exhibit 26: Exhibit 13: Details of grinding capacity expansions

Capacity Project cost
Grinding units State Region Infrastructure Project status
(mtpa) (Rs bn)
Kolaghat West Bengal East 1.1 3.9 Railway Siding Commissioned in Sep-19
Vizag Andhra Pradesh South 1.1 2.2 Commissioned in Mar-20
Railway Siding & Wagon
Haridaspur Odisha East 1.0 7.2 Commissioned in Sep-20
tippler
Source: Company, Systematix Institutional Research

Sales volume in the Eastern region to increase post the commissioning of its new
grinding units
TRCL’s sales into the East markets at present are ~28%. It has established itself as an
A-category brand in the West Bengal markets. The commissioning of the grinding
unit in Odisha would help it become an A-category brand from B earlier. The price
difference between the A & B category brands is Rs 10-12/bag. It used to service
coastal Odisha from its Jayanthipuram plant and was unable to assure cement
availability to dealers given the issue with rakes availability. Apart from lower costs,
material supply will improve, which will enhance its brand image in the markets.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 211
01 September 2021 The Ramco Cements
Odisha as a market has a higher demand for blended cement (trade volumes).
However, TRCL’s sales into the trade segment were at ~50% due to issues in
supplying materials to dealers. With the commissioning of the grinding unit, it aims
to improve its trade sales to 80% in the Odisha markets. Trade sales offer better
margins than non-trade sales.
Exhibit 27: Exposure to the Eastern markets should increase going forward
100
90 18
28 34
80
12
70
10 10
60 11
9

(%)
50 20 10
18
40 15
30
20 40 35 30
10
0
FY16 FY21 FY24E
Tamil Nadu Kerala Karnataka Andhra Pradesh East markets

Source: Company , Systematix Institutional Research

The expanded clinker capacity at Jayanthipuram, Andhra Pradesh should help meet
the additional clinker requirements of the grinding capacities in Kolaghat, West
Bengal; Haridaspur, Odisha and Vizag, Andhra Pradesh. The greenfield plant at
Kurnool will help TRCL service the markets of Andhra Pradesh and North Karnataka.
Some of these markets are serviced by the Jayanthipuram plant which has a higher
lead distance. The company has planned two more grinding units in the South (land
acquired for one unit in Rayalaseema, Andhra Pradesh while the other is planned in
Karnataka).
Exhibit 28: The Jayanthipuram plant is closer to the Vizag and Odisha grinding units; the
Kurnool plant will help serve the AP and Karnataka markets

Kolaghat, WB

Haridaspur,
Odisha

Jayanthipuram, AP
Vizag, AP

Kurnool, AP

Satellite Grinding
Unit (SGU)
Integrated Unit

Source: Company, Systematix Institutional Research; Map not measured to the scale

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 212
01 September 2021 The Ramco Cements
Higher capex cost of grinding units due to better infrastructure; limestone available
for future growth opportunities
TRCL establishes grinding units and acquires additional land considering its future
expansion opportunities. All its grinding units, except two in Tamil Nadu, have
railway sidings attached to the plant. It also has multiple silos at the grinding units for
different varieties of cement. Acquisition of land earlier resulted in lower capital cost
for the expansion of the grinding units in Vizag (land available for 2-3 more lines) and
Kolaghat (railway siding was also commissioned with the Kolaghat grinding unit in
the second phase). Before the commissioning of the railway siding, the clinker was
ground at a distance of about 25kms from the Kolaghat grinding unit.
Its grinding unit in Haridaspur, Odisha has 180acres of land which would be sufficient
for a capacity of 3-4mtpa while the cost per incremental 1mtpa grinding unit would
be only Rs 250-300mn. This plant has been commissioned with four different silos,
railway siding and wagon tipplers. Wagon tipplers will help the company unload the
wagons in 6 hours vs. 18-20 hours in manual unloading. The cost of the railway siding
and wagon tipplers was around Rs 1bn.
At its integrated plant in Kurnool, Andhra Pradesh, it has limestone reserves of
500mt which will be sufficient to meet the requirements of 5-6 clinker lines. It also
has 300-350mt of limestone reserves for its Jayanthipuram plant.
Exhibit 29: Plants and their attached infrastructure
Clinker Cement WHRS Railway Wagon
Integrated plants State Region CPP (MW)
(mtpa) (mtpa) (MW) Siding Tippler
Ramasamy Raja Nagar Tamil Nadu South 1.1 2.0 25 3 Y
Jayanthipuram Andhra Pradesh South 4.6 3.7 42 27 Y Y
Alathiyur Tamil Nadu South 2.4 3.1 42 7 Y Y
Ariyalur Tamil Nadu South 3.3 3.5 66 Y Y
Kurnool Andhra Pradesh South 2.3 1.0 18 12 Y Y
Total 13.7 13.2 193 49
Grinding units
Kancheepuram Tamil Nadu South 0.5
Salem Tamil Nadu South 1.6
Kolaghat West Bengal East 2.0 Y
Vizag Andhra Pradesh South 2.0 Y Y
Kharagpur West Bengal East 0.2
Haridaspur Odisha East 0.9 Y Y
Grinding units- total 7.2
Total capacity 13.7 20.4
Source: Systematix Institutional Research, Company;^includes plant under commissioning

Introduced “Right Cement for Right Application”

TRCL has introduced several products with a focus on providing ‘different cement for
different applications’. It manufactures 12 types of cement including three varieties
for individual housing. It has developed two high-value products 1) Ramco
Supercrete - a premium blended cement, which is a crack resistant, high-strength
cement and 2) Ramco Infra - speciality concept cement, meant for infrastructure
projects. With these products, the company has operated its clinker plants at a 90%+
capacity utilisation rate for the last two years vs. the Southern region’s average
capacity utilisation of 62%.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 213
01 September 2021 The Ramco Cements
Exhibit 30: A wide range of products help to cater to different consumer segments

Source: Company, Systematix Institutional Research

The efforts of the Marketing and MACE (Masons, Architects, Contractors and
Engineers) teams have helped to create the intended awareness among the
consumers about the superior attributes of these products. The logistics team
ensured timely delivery of these products by devising the most optimal model for
distribution even when the customers’ requirements were in smaller lots. The
concerted efforts have received tremendous response in the niche market,
graduating TRCL from a cement-maker to a complete cement solutions provider.
The company also increased its advertisement spends in FY20 (up 2.5x YoY)
considering the launch of new product ranges and to create more brand awareness
in the East markets considering capacity expansions.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 214
01 September 2021 The Ramco Cements
Exhibit 31: Increase in advertisement spends in FY20 to create awareness for new
product ranges

120 3
2.0
100
2

80 1.5
2

(Rs/ton)
1.1

(%)
60
0.9
0.8 0.8 0.8 97 1
40 0.7
62 0.4
51 45 1
20 39 38 38
32
21
0 0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Rs/ton of cement sold % of sales (RHS)

Source: Company, Systematix Institutional Research

MACE (Masons, Architects, Contractors and Engineers) division provides value

added services
The MACE division provides on-site technical assistance to customers and guides
them on using the right products for the right applications and in the right manner.
This division provides engineering solutions for big projects, aftersales support
services to individual homebuilders and mobile technical services. Being a free
support service, it also enables significant cost-savings for the customers.
Exhibit 32: MACE division provides free technical service at every construction stage

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 215
01 September 2021 The Ramco Cements
Industry-leading profits due to a superior cost structure
TRCL is one of the lowest variable cost producers of cement given its a) lower kiln
heat rate, b) higher dependence on captive power – coal-based and wind power and
c) fuel flexibility/better fuel strategy. Limestone impurity had impacted its operating
costs in FY14/15; it resolved the issue by installing an optical sorter at its Pandalgudi
mines to beneficiate the limestone; this also helped the company reduce its
dependence on high-grade imported limestone while increasing the life of the mines.
Further, the company installed a limestone washery at its Alathiyur plant which helps
in reclaiming and utilising low-grade limestone.
Its variable cost of production in FY21 was the third-lowest within our sector
coverage universe (adjusted for the purchase of clinker from outside for meeting the
requirements of the Eastern grinding units).
Exhibit 33: Variable cost of production vs. peers in FY14 Exhibit 34: One of the lowest variable cost producers
2,500 2,500
2,002 2,006
2,000 1,824 1,821 1,922 1,868
1,782 1,737 2,000 1,818 1,835
1,676 1,646 1,719 1,668
1,581
1,502
1,500 1,500 1,381
(Rs/ton)

1,281 1,276

(Rs/ton)
1,084
1,000 1,000

500 500

0 0
Dalmia
ACC

SRCM

JKLC
BCORP

TRCL
UTCEM

JKCE

ICEM

ACEM

ACC

SRCM

BCORP

JKLC

Dalmia
JKCE

ICEM
TRCL
UTCEM

ACEM
FY14 FY21

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 35: Kiln heat rate is lower than peers Exhibit 36: Clinker to cement conversion increased in FY21 on
higher blended sales
750 742
1.38 1.37
740
1.36 1.34
730 721 718 1.34
720
(kcal/ton of clinker)

1.32
1.30 1.30
710 1.30
700 1.28
690 1.26
680 1.26
680 1.24
670 1.22
660 1.20
650 1.18
640 FY17 FY18 FY19 FY20 FY21
TRCL ACC SRCM UTCEM Cement to clinker ratio (x)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 216
01 September 2021 The Ramco Cements
Exhibit 37: …reflected in higher power consumption Exhibit 38: Captive power plants fulfill 85-90% of power
requirements
84 82.9 91
89.9 89.7
82 81.5 90
88.7
89
(kwh/ton of cement)

80
78.1 88
78 77.0 87
76.5

(%)
76 75.2 86
84.9
85
74
84
72
83
70 82
FY16 FY17 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21

Power (kwh/ton of cement) Captive power plants

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Commissioning of the WHRS and new clinker plant to improve the cost structure
further
TRCL has commissioned 18MW of Waste Heat Recovery System (WHRS) capacity at
its Jayanthipuram, Andhra Pradesh plant and the balance 9MW is expected to be
commissioned soon. Further, the WHRS capacity of 12.15MW will be commissioned
along with the clinker plant at Kurnool, Andhra Pradesh. We expect the
commissioning of the WHRS plants to improve its cost structure by Rs 45/ton+. We
have assumed that the Kurnool plant’s clinker capacity utilisation will reach 50% by
FY23E.
Exhibit 39: Expect savings after the commissioining of WHRS plants
Savings from WHRS Jayanthipuram Kurnool Total
WHRS capacity (MW) 27 12 39
Power generation (mn kwh) 118 34 151
PLF (%)- calculated 60.0 38.7 53.4
Savings (Rs mn) 470 135 605
Savings (Rs/ton) on cement production- FY23E 46
Source: Company, Systematix Institutional Research

TRCL had to purchase clinker (0.3mt) in FY21 to meet the requirements of its Eastern
plants. In the 4QFY21 earnings call, the management indicated that the company had
to purchase clinker (20-25kt) at an additional cost of Rs 500/ton to meet the
requirements of its Eastern plants. The commissioning of its new clinker plant should
lead to savings of Rs 130-140mn (on FY20 volumes) for the company.
Commissioning of Haridasur, Odisha grinding unit to lead to cost savings
9-10% of TRCL’s sales volumes accrue from the state of Odisha which was earlier
serviced from its Jayanthipuram/Vizag plants. With the commissioning of the
grinding unit in Haridaspur, Odisha, the company will shift clinker instead of cement
to cater to the state. This plant will mostly cater to Coastal Odisha (Cuttack, Puri,
Bhubaneswar etc.) while South Odisha (Ganjam, Gajptai, Malkangiri, Navrangpur,
Naigarha) will be supported by the Vizag plant. Western Odisha (Shambhalpur,
Sundargarh, Bargarh etc.) is being fed by Chhattisgarh-based players.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 217
01 September 2021 The Ramco Cements
Exhibit 40: South Odisha is closer to the AP makets while West Odisha is being fed by
Chhattisgarh players

Source: Systematix Institutional Research; Map not measured to the scale

The commissioning of the Haridaspur grinding unit will lead to an incremental saving
of about Rs 290mn (assuming of the total volumes sold in Odisha market in FY21,
one-half to be sold in coastal Odisha and the other half in south Odisha markets). The
management believes that the Odisha plant will help save Rs 300-400/ton as 50% of
the required raw materials are available nearby.
Exhibit 41: Savings from the commissioning of the Haridaspur, Odisha grinding unit
Particulars FY21
Sales volumes to Coastal Odisha (mt) 0.5
Sales volumes to South Odisha (mt) 0.5
Clinker required (mt) 0.635
Clinker transfer cost- Jayanthipuram to Vizag (70% sales to Odisha)- Rs mn 323
Cement transfer to Odisha markets from Vizag- Rs mn 627
Cement transfer to Odisha markets from AP plant- Rs mn 664
Total cost incurred (FY20)- Rs mn 1,613
Clinker transfer cost- 50% of sales to Haridaspur GU (Rs mn) 492
Cement sales cost in Coastal Odisha (Rs mn) 240
Cement sales cost in South Odisha (Rs mn) 590
Total cost post commissioning of grinding unit (Rs mn) 1,322
Savings (Rs mn) 292
Source: Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 218
01 September 2021 The Ramco Cements

Financial Highlights
We expect TRCL’s sales volumes to grow at a CAGR of 14.6% over FY21-24E led by 1)
a lower base of FY21 and 2) higher volumes in the Eastern region - TRCL’s volume mix
in the Eastern region is expected to increase from 28% in FY21 to 34% in FY24E. We
expect its grinding capacity utilisation to be 57%/62%/72.3% in FY22E/23E/24E vs.
60.7% in FY20. Higher volume along with a realisation CAGR of 1% over the next
three years should aid revenue CAGR of 15.3% between FY21-24E.
Exhibit 42: Expect revenue CAGR of 15.3% over FY21-24E… Exhibit 43: …led by 14.6%/1% volume/NSR growth

90 20% 25%
19%
80 20% 16.3%
15% 14.4%
70 15% 13.0%
12%
10%
60
10% 10%
5%
(Rs bn)

50

(%)
5% 2.0% 1.0%
40 0%

(%)
-2% 1% 0.0%
5%
30 0%

20 0% -5%
-11%
10 -10%
0 -5% -15%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Net sales YoY growth (%) (RHS) Sales volume growth Realisation growth

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
TRCL’s operating profit is expected to grow at a CAGR of 13.4% during FY21-FY24E
led by higher sales volumes/realisation, commissioning of WHRS capacities and
improvement in profitability in the Eastern region. Its OPM increased to
21.2%/29.1% in FY20/21 from 20.1% in FY19 led by steep improvement in realisation
(+5%/+10%YoY in FY20/21) and control on variable costs in FY21. We expect OPM to
be at 27.5% in FY22E on higher energy costs and an increase in variable costs
(travelling and office expenses). Post that, we have factored an OPM of 26.9%/27.7%
in FY23E/24E.
The company’s adjusted profits declined by 14.4% YoY in FY18 on higher tax rates
(ETR at 29.2% vs. 23.6% in FY17) and by 9% YoY in FY19 on account of lower
operating margin (20.1% in FY19 vs. 25% in FY18). Adjusted profits grew at a CAGR of
~21% over FY19-21 on a better operating performance. We expect adjusted profits
to grow at a CAGR of 17.5% over FY21-24E. Depreciation expense is likely to increase
at a CAGR of 9.3% over FY21-24E due to on-going capacity expansions. Interest
expense should decline in FY23/24E after an increase of 2.2x in FY22E.
Exhibit 44: Estimate EBITDA CAGR of 13.4% between FY21-24E Exhibit 45: PAT CAGR of 17.5% over FY21-24E
25 35% 14 40%
29.1% 33%
27.7%
27.5% 26.9% 30% 12
20 30%
25.0% 23%
25% 10 19%
20.1% 21.2% 16% 20%
15 20% 8
(Rs bn)
(Rs bn)

6%
(%)

(%)

10%
22.3 15% 6
10
18.5 0%
15.3 16.6 4
10% -9%
5 11.0 10.4 11.4 -14%
2 -10%
5%
0 -20%
0 0%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) Adj. PAT YoY growth (%) (RHS)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 219
01 September 2021 The Ramco Cements
Better operating performance in the last two years has led to the company recording
its highest EBITDA/ton post FY16. We expect EBITDA/ton to moderate to Rs 1,401/Rs
1,381/Rs 1,435 in FY22E/23E/24E vs. Rs 1,460 in FY21.
Exhibit 46: EBITDA/ton to moderate in FY22/23E before increasing in FY24E

1,489

1,460

1,435
1,408
1,381
1,344
1,600 80%

1,213
1,203

1,109
1,400

1,086
60%
1,200

963
40%

930

876
868
1,000

(Rs/ton)
20%

655

(%)
800
0%
600
-20%
400
200 -40%

0 -60%

FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
EBITDA/ton YoY change (%) (RHS)
Source: Company, Systematix Institutional Research

TRCL’s operating cash (OCF) declined at a CAGR of 18% over FY18-20 led by 1) a
decline in profits in FY19 and 2) a cumulative increase in working capital of Rs
3.85bn. Improved profits in FY21 and the release of working capital (Rs 5.1bn) led to
an OCF increase of 155% in FY21.
The company was generating free cash (FCF) over FY15-18. However, higher capital
expenditure in FY19/20 (Rs 31.2bn) led to a negative FCF of Rs 15.9bn in those two
years. The improvement in OCF in FY21 led to FCF of Rs 1.2bn despite the higher
capital expenditure of Rs 17.7bn. TRCL’s OCF grew at a CAGR of 11% between FY17-
21, while it reported a cumulative negative FCF Rs 0.5bn in this period.
Given the strong top-line growth and continued focus on opex control, we expect the
company to generate a robust OCF of Rs 44.3bn in the next three years. The
cumulative FCF over FY21-24E should be around Rs 25.3bn as it has already
completed most of the capex for its on-going projects. However, our FCF estimates
may change if the company initiates a further capacity expansion.
Exhibit 47: FCF to rise on robust OCF and completion of the ongoing capex cycle

25 15
20
15 10
10 5
5
(Rs bn)

0 0
(Rs bn)

-5
-10 -5
-15 -10
-20
-25 -15
FY17
FY10
FY11
FY12
FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E

CFO Capex FCF (RHS)

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 220
01 September 2021 The Ramco Cements
TRCL’s gross debt peaked in FY14 when its profitability had declined sharply
(EBITDA/ton declined to Rs 655 vs. Rs 1,203 in FY13). Post that, gross debt declined
to Rs 11.1bn in FY18 from Rs 29.3bn in FY14 led by a) steep improvement in
profitability between FY14-17 as EBITDA grew at a CAGR of 28.5% in that period; b)
release of working capital - cumulative reduction of Rs 5.5bn over FY14-18 and c)
lower capex which along with higher operating cash flows led to free cash flow
generation of Rs 27.5bn over FY14-18. Net debt declined to Rs 8.3bn in FY18 from Rs
26bn in FY14.
Post FY18, TRCL incurred a capex of Rs 48.9bn on its capacity expansion plans in the
Eastern and Southern regions. Higher capex led to an increase in gross debt to Rs
31bn in FY21 from Rs 11.1bn in FY18. Net debt in this period increased to Rs 27.6bn
from Rs 8.3bn in FY18. We believe that its gross and net debt has peaked out in FY21
during the on-going phase of capacity expansion; we expect its gross debt to dip to
Rs 12bn in FY24E.
We believe that net debt/EBITDA had peaked out at 2.4x in FY20 during the on-going
capacity expansion phase and there will be a gradual improvement from hereon.
Exhibit 48: Gross debt is expected to dip to Rs 12bn by FY24 Exhibit 49: Net debt/EBITDA peaked out in FY20 during the current
phase of capacity expansion

35 6
5.1
30 5
25
4 3.6
20
(Rs bn)

2.6
(x)

3
15
1.9 1.9 1.7
10 2 1.5
1.1 1.2
0.9
5 1
1.2 0.5
1.0 0.5
0 0.7 0.3 0.3
0.6 0.5
0 0.2 0.3 0.1
FY14

FY22E

FY23E

FY24E
FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E

Gross Debt Net Debt Net D/E Net Debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

TRCL’s RoE improved to 14% in FY21 from 12.8% in FY20 led by a) higher cement
prices in the Southern markets - operating profit increased by 34.9% YoY, leading to
EBIT margin improvement of 7% YoY and b) cost savings - control on fixed and
variable costs during COVID-19. Its tax rate increased to 33.2% in FY21 from 23.6% in
FY20, leading to a decline in profit margins. We expect its RoE to improve to 15.7%
by FY24E led by higher assets turnover (improved capacity utilisation), continued
reduction in debt and improvement in EBIT margin (22.4% in FY24E vs. 23% in FY21).
Exhibit 50: Du-pont analysis
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 70.8% 70.7% 76.4% 66.1% 70.7% 70.7% 70.7%
PBT/EBIT 93.0% 93.4% 91.7% 92.7% 85.2% 88.6% 94.3%
EBIT/Sales 19.2% 14.9% 16.0% 23.0% 21.5% 21.0% 22.4%
Asset turnover (x) 0.74 0.80 0.68 0.56 0.60 0.66 0.77
Assets/Equity (x) 1.53 1.52 1.69 1.77 1.69 1.56 1.37
ROE (%) 14.3 11.9 12.8 14.0 13.1 13.5 15.7
Source: Company, Systematix Institutional Research

RoCE is expected to improve to 17.2% in FY24E from 12.9% in FY21 on the back of an
improvement in margins. Its RoIC is expected to improve to 18% in FY24E from 16.9%
in FY21 as higher profits along with lower capex will aid strong cash generation.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 221
01 September 2021 The Ramco Cements
Exhibit 51: Return ratios to improve over FY21-24E
20
18.0
18 17.2 16.9
15.7
16
14.0
14 12.9 13.0
11.9 11.9
12

(%)
10
8
6
4
2
0
RoE RoCE RoIC
FY19 FY21 FY24E
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 222
01 September 2021 The Ramco Cements

Cash flow analysis & corporate governance

FCF generation: TRCL generated cumulative FCF of Rs 7.6bn over FY16-21.
FCF utilisation: Of the total FCF generation of Rs 7.6bn over the past 6 years, the
company paid 70% (Rs 5.3bn) towards dividends (including dividend tax). Cumulative
interest payment in last 6 years is Rs5.5bn (73% of FCF). Gross debt has increased by
Rs9.8bn in last 6 years.
FCF expectation: We expect the FCF to increase to Rs 3.1bn in FY22E as TRCL is in the
last leg of its capex program and has a lower capex requirement (Rs 9bn vs. Rs
17.7bn in FY21). It is expected to generate a cumulative FCF of Rs 25.3bn between
FY21-24E.
Earnings quality: During the last 10 years, it has earned a cumulative PAT of Rs
49.3bn against which it generated OCF of Rs 97.2bn (1.97x of profits).
Exhibit 52: Expect Rs 25bn of free cash over FY22-24E Exhibit 53: Healthy cash flow quality
15 12.6 0 120 200%
9.6 0 97
10 100
6.2 195%
0
5 3.1 80
1.2 (Rs bn) 190%
0
(Rs bn)

56
60
(%)

0 49
0 185%
40 34 31
-5
(4.1) 0 18
20 180%
-10 0
(11.8) - 175%
-15 0 3Yrs 5Yrs 10Yrs
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Cumulative PAT
FCF FCF yield (%) Cumulative OCF
Cumulative OCF as % of Cum. Pat- (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 54: Contingent liabilities

Contingent liabilities (Rs mn) FY16 FY17 FY18 FY19 FY20 FY21
Demand from Competition Commission of India 2,586 2,586 2,586 2,586 2,586 2,586
Excise Duty, CENVAT Credit 5,482 5,641 5,647 5,711 3,561 3,560
Others 1,868 2,712 2,733 1,579 2,731 2,880
Total 9,936 10,940 10,967 9,876 8,878 9,027
% of networth 32% 29% 27% 22% 18% 16%
Source: Company, Systematix Institutional Research

Exhibit 55: Director and KMPs renumeration & pledging details

Other key monitorables FY16 FY17 FY18 FY19 FY20 FY21
Remuneration to Directors & KMPs (Rs mn) 469 571 525 529 581 918.0
% of PBT 7.0% 6.7% 6.7% 7.4% 7.4% 8.2%
Auditor's remuneration (Rs mn) 3.50 3.40 3.80 4.40 4.70 48.00
% of PBT 0.1% 0.0% 0.0% 0.1% 0.1% 0.4%
Pledged shares as (%) of promoter holding 4.5% 5.4% 2.0% 2.0% 2.0% 13.0%
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 223
01 September 2021 The Ramco Cements

Systematix vs. Consensus

Our revenue and EBITDA estimates are 3%-5% below Bloomberg consensus for
FY22E and FY23E. However, we expect higher top-line growth and EBITDA for TRCL in
FY24E led by 1) Higher volumes owing to the commissioning of its new clinker and
grinding plants, 2) lower opex due to the WHRS plant and other cost-saving
initiatives (particularly logistics) and 3) better realisation. Consequently, our FY24E
Revenue/EBITDA estimates are 4%/2% above Bloomberg consensus.
Exhibit 56: Ramco Standalone - Bloomberg vs. our estimates
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 62 72 78
Systematix est. 60 69 80
% Difference -3% -4% 4%
EBITDA (Rs bn)
Consensus 17 20 22
Systematix est. 17 19 22
% Difference -3% -6% 2%
EBITDA Margin (%)
Consensus 27.4% 27.5% 28.3%
Systematix est. 27.5% 26.9% 27.7%
Difference (bps) 3 (60) (58)
Source: Bloomberg, Company

Exhibit 57: Key Assumptions

Particulars FY19 FY20 FY21 FY22E FY23E FY24E
Sales volume (mt) 11 11 10 11 13 15
Cement Realization (Rs/ton) 4,407 4,576 5,032 5,132 5,132 5,184
Per ton costs (Rs)
Raw material 761 780 865 854 878 903
Purchase of goods - - - - - -
Employee cost 296 329 403 378 357 332
Power & Fuel 950 938 797 943 952 938
Freight 1,068 1,016 1,029 1,058 1,089 1,120
Other expense 619 715 634 655 622 586
Total Cost 3,694 3,777 3,728 3,888 3,898 3,878
Source: Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 224
01 September 2021 The Ramco Cements

Key downside risks

1) Further delay in the commissioning of pending capex: As per the latest
management commentary, TRCL aims to commission its Jayanthipuram/Kurnool
clinker line by 1QFY22/2QFY22. The plant has got delayed due to COVID-19-led
challenges; however, any further delay could lead to lower-than-estimated
volume growth.
Mitigation strategy: To avoid the delay amidst the pandemic, the management
will mobilise the resources to Kurnool to commission the clinker line.
2) Lower cement prices in the Southern/Eastern regions: Historically, cement prices
have remained volatile in the Southern region due to the lower capacity
utilisation of existing units. We have assumed a better pricing scenario
considering the improvement/sustainability of price hikes in FY21. In the Eastern
region too, prices remain volatile due to material inflow from the
Southern/Central regions and higher capacity additions. Lower-than-estimated
cement prices will impact on our earnings estimates adversely.
Mitigation Strategy: Ramco aims to sell clinker at a premium price in Eastern
India as it estimates clinker shortage in the region given the upcoming supply. It
should cushion volatile cement prices, if any.
3) Inflationary pressures in fuel costs: There has been a steep increase in the prices
of pet coke, coal and diesel in the last few months. The price of pet coke is up
~75% over the last year while the price of imported coal has increased by over
30%. Pet coke prices are up ~40% vs. 4QFY21. Though cement companies are
trying to control energy costs by changing their fuel mix (lower usage of pet coke
and Australian coal), the continued escalation in coal/pet coke prices could
impact our earnings estimates if the industry is unable to pass on the cost
increases to consumers.
Mitigation Strategy: To counter the rising fuel costs 1) TRCL will ramp-up the
newly commissioned WHRS at Jayanthipuram and also commission the 12MW
WHRS at Kurnool in FY23E.
4) Prolonged pandemic-related restrictions/lockdowns: We estimate TRCL to
report 13% volume growth in FY22E; however, continued localised lockdowns in
the country could act as a downside risk to our estimates. Besides hurting
demand, lockdowns/restrictions impact the mobilisation of labour at construction
sites and delay the process. However, we derive confidence from the vaccination
pace in India and believe that economic recovery and normalcy will be attained
from 2HFY22E onwards.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 225
01 September 2021 The Ramco Cements

Valuation and View

TRCL is the second-largest player in the Southern region and has a capacity market
share of 9.3% there. It also has grinding capacities of 3.1mtpa in the Eastern region
(2.1mtpa in West Bengal and 1mtpa in Odisha). Clinker units of the firm are located
only in the Southern region with a current production capacity of ~10mtpa (3.1mtpa
in Andhra Pradesh and the rest in Tamil Nadu).
The company’s expansion plans were announced as clinker capacity utilisation had
started to improve from FY18. Its clinker utilisation increased to 90% in FY20 from
60% in FY17. This compares to the average industry clinker utilisation in the Southern
region of 58% in FY20. Disruptions caused by COVID-19 led to clinker utilisation of
75% in FY21 vs. the industry’s average utilisation of 49%. Post the on-going
expansion (clinker plant of 2.25mtpa in Andhra Pradesh and 1.5mtpa in Tamil Nadu),
its total clinker capacity will increase to 13.66mtpa, while split grinding capacities will
be commissioned in Kolkata, Vizag (both brownfield expansion) and Odisha
(greenfield). These capacities will aid volume growth.
The stock trades at 16.1x/14x/11.2x FY22E/23E/24 EV/EBITDA and USD 180/175/161
FY22E/23E/24E EV/ton. It has traded at an average EV/EBITDA of 13.7x in the last
seven years. With the improvement in profitability (EPS expected to grow at a CAGR
of 17.5% over FY21-24E), return ratios (RoE to be at 15.7% in FY24E vs. 14% in FY21)
and a stronger balance sheet (net Debt/EBITDA at 0.5x in FY24E vs. 1.9x in FY21), we
expect it to trade at higher multiples. We value TRCL at 16.5x FY23 EV/EBITDA to
arrive at a target price of Rs 1,205 (an upside of 19.5% from the CMP) and initiate
coverage on the stock with a BUY rating. At our TP, the stock will trade at
16.5x/13.3x FY23E/24E EV/EBITDA and USD 206/191 FY23E/24E EV/ton.
Exhibit 58: 1-year forward EV/EBITDA Exhibit 59: 1-year forward EV/ton
20
190

170
15
150
(US$/ton)

130
(x)

10
110

5 90

70
0 50
Aug-17
Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16

Aug-18

Aug-19

Aug-20

Aug-21

Aug-12
Aug-09

Aug-10

Aug-11

Aug-13

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
1-year forward EV/EBITDA Mean Std-1 Std+1 1yr fwd EV/ton Mean Std-1 Std+1
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 226
01 September 2021 The Ramco Cements

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 53,684 52,446 60,417 68,788 80,429 Equity share capital 236 236 236 236 236
Growth (%) (2.3) 15.2 13.9 16.9 Reserves & surplus 48,950 56,032 62,876 70,807 81,547
EBITDA 11,366 15,267 16,587 18,531 22,264 Net worth 49,186 56,268 63,112 71,043 81,783
Growth (%) 34.3 8.6 11.7 20.1 Loan Funds 30,241 30,993 30,031 23,031 12,231
EBITDA margin (%) 21.2 29.1 27.5 26.9 27.7 Net Deferred Taxes 9314.4 10876.5 10876.5 10876.5 10876.5
Depreciation 3,153 3,553 3,939 4,439 4,637 Total Liabilities 88,741 98,138 104,020 104,951 104,891
EBIT 8,214 11,714 12,648 14,092 17,627
Other Income 372 346 360 375 390 Net block 60,532 69,566 94,179 92,740 97,603
Interest expenses 714 876 1,926 1,647 1,024 Capital WIP 18,143 23,552 4,000 6,000 1,500
PBT 7,872 11,184 11,082 12,820 16,993 Investment 1,887 2,009 2,009 2,009 2,009
Tax 1,861 3,786 3,247 3,757 4,980 Current Assets 19,908 18,054 18,519 19,777 20,131
Effective tax rate (%) 23.6 33.9 29.3 29.3 29.3 Inventories 6,453 5,979 6,358 6,726 6,950
Adjusted PAT 6,011 7,398 7,835 9,063 12,014 Sundry Debtors 5,269 3,752 4,174 4,779 4,906
Growth (%) 23.1 5.9 15.7 32.6 Cash and Bank 914 1,419 1,029 1,193 1,121
Net Margin (%) 11.2 14.1 13.0 13.2 14.9 Current Liab & Prov 11,729 15,043 14,688 15,575 16,353
Reported PAT 6,011 7,398 7,835 9,063 12,014 Net current assets 8,179 3,011 3,832 4,202 3,779
Growth (%) 23.1 5.9 15.7 32.6 Total Assets 88,741 98,138 104,020 104,951 104,891
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PBT (Ex-Other income) 7,872 11,397 10,722 12,445 16,603 Profitability (%)
Depreciation 3,153 3,553 3,939 4,439 4,637 EBITDA Margin 21.2 29.1 27.5 26.9 27.7
Interest Provided 674 876 1,926 1,647 1,024 Net Margin 11.2 14.1 13.0 13.2 14.9
Other Non-Cash items ROCE 10.8 12.9 12.9 13.8 17.2
Chg in working cap (2,921) 5,076 (1,210) (207) 352 ROE 12.8 14.0 13.1 13.5 15.7
Tax paid (1,376) (2,077) (3,247) (3,757) (4,980) RoIC 13.0 16.9 15.0 14.6 18.0
Operating Cashflow 7,400 18,848 12,129 14,568 17,636 Per Share Data (Rs)
Capital expenditure (19,193) (17,663) (9,000) (5,000) (5,000) EPS 25.5 31.4 33.2 38.4 50.9
Free Cash Flow (11,793) 1,185 3,129 9,568 12,636 CEPS 38.9 46.4 49.9 57.2 70.6
Other income 18 55 360 375 390 BVPS 208.8 238.5 267.5 301.2 346.7
Investments (150) (100) - - - DPS 2.5 3.0 3.5 4.0 4.5
Investing Cashflow (19,325) (44) 360 375 390 Valuations (x)
Equity Capital Raised - 16 - - - PER 39.5 32.1 30.4 26.2 19.8
Loans Taken / (Repaid) 14,270 753 (962) (7,000) (10,800) P/CEPS 25.9 21.7 20.2 17.6 14.3
Interest Paid (580) (696) (1,926) (1,647) (1,024) P/BV 4.8 4.2 3.8 3.3 2.9
Dividend paid (incl tax) (1,564) (708) (991) (1,132) (1,274) EV / Sales 5.0 5.1 4.4 3.8 3.1
Income from investments - - - - - EV / EBITDA 23.5 17.5 16.1 14.0 11.2
Others - - - - - Dividend Yield (%) 0.2 0.3 0.3 0.4 0.4
Financing Cashflow 12,127 (636) (3,879) (9,780) (13,098) Gearing Ratio (x)
Net chg in cash 202 504 (389) 163 (72) Net Debt/ Equity 0.6 0.5 0.5 0.3 0.1
Opening cash position 713 914 1,419 1,029 1,193 Net Debt/EBIDTA 2.6 1.9 1.7 1.2 0.5
Closing cash position 915 1,419 1,029 1,193 1,121 Working Cap Cycle (days) (0.1) (36.5) (26.9) (23.0) (22.0)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 227
 Systematix
Institutional Equities

Birla Corporation 01 September 2021

Growing scale should drive re-rating

INITIATING COVERAGE Birla Corporation (BCORP) is the second/eighth largest player in terms of installed
Sector: Cement Rating: BUY capacity in the Central region/Pan-India and derives over 95% of its revenue from
the Northern, Central and Eastern regions. The company has been operating its
CMP: Rs 1,355 Target Price: Rs 1,685
grinding capacity at a utilisation rate of over 90% since FY19. It aims to increase its
Stock Info cement grinding capacity by 33% to 20.4mtpa by FY23E and further to 25mtpa by
Sensex/Nifty 56,890/16,931 2025. Sales volume should grow at a CAGR of 10% over FY21-24E (8% CAGR
Bloomberg BCORP IN between FY10-21). The stock is trading at 8.3x FY23E EV/EBITDA, which is
Equity shares (mn) 77 significantly lower than other companies with similar capacities. The company’s
52-wk High/Low Rs 1,560/576 ability to add capacity without straining its balance sheet should drive a multiple
Face value Rs 10 re-rating. We expect its EBITDA/net profit to grow at a CAGR of 10.3%/11.5% over
M-Cap Rs 103bn/ USD 1.4bn FY21-FY24E. Net Debt/EBITDA should be at 2x in FY23E despite the on-going capex.
3-m Avg volume USD 3.1mn We initiate coverage on the stock with a BUY rating and a target price of Rs 1,685.
Financial Snapshot (Rs mn) Expansion to aid growth; aims to achieve higher capacities
Y/E March FY22E FY23E FY24E
Sales 74 84 92 BCORP has been operating its grinding capacity at a utilisation rate of over 90% since
EBITDA 14 16 18 FY19 (except in 1QFY21 due to the nationwide lockdown). It has added capacity at a
PAT 6 7 9 CAGR of 8.1% between FY10-21 and will expand its clinker/cement capacity by
EPS (Rs) 78.1 88.7 113.3 30%/33% to 13mtpa/20.4mtpa by FY23E, which should aid volume growth. We
PE (x) 17.3 15.3 12.0 expect a volume CAGR of 10.1% over FY21-24E. The management has set a target of
EV/EBITDA (x) 10.0 8.4 7.0
increasing its cement capacity to 25mtpa by 2025.
RoE (%) 10.5 10.8 12.5
RoCE (%) 7.7 8.3 9.7 Incentives/cost savings to boost profits; higher scale should drive re-rating
Dividend yield (%) 0.7 0.7 0.8
 Incentives from state governments constituted 13.4% of BCORP’s EBITDA in FY20
Shareholding pattern (%)
(11.7% in FY21 as per our estimates) and will continue to contribute to 10-11% of
Jun-21 Mar-21 Dec-20 EBITDA till FY24E. Cost-saving strategies like the mining of coal through allotted
Promoter 62.9 62.9 62.9 blocks in e-auction, freight cost savings for its existing grinding unit in Butibori,
–Pledged - - - Maharashtra after the commissioning of the integrated plant at Mukutban,
FII 3.96 3.61 3.8
Maharashtra and lower dependence on outside power should boost profits. BCORP is
DII 13.8 13.8 13.6
trading at 8.3x FY23E EV/EBITDA, which is lower than the average valuation of our
Others 19.4 19.7 19.7
coverage universe and companies with similar capacities. The valuation multiple
Stock Performance (1-year) should re-rate gradually as the company continues with its capacity expansion plans.
1600
Outlook and valuation
1400
1200
BCORP trades at 10x/8.4x/7x FY22/23/24E EV/EBITDA and USD 99/89/79
1000
FY22/23/24E EV/ton. It has traded at an average EV/EBITDA of 8x in the last 7 years.
800
600
Going forward, with the improvement in profitability (EPS expected to grow at a
400 CAGR of 11.5% over FY21-24E), stable return ratios (12.5% in FY24E vs. 12.2% in
Nov-20

Jul-21

Aug-21
Aug-20

Sep-20

Dec-20

Jan-21

Feb-21
Mar-21

Apr-21
Oct-20

May-21

Jun-21

FY21) & balance sheet (net Debt/EBITDA at 1.3x in FY24E vs. 2.49x in FY21) and a
continued focus on capacity additions, we expect BCORP to trade at higher-than-
Birla Corp Sensex
historical multiples. We value it at 10x FY23E EV/EBITDA to arrive at a target price of
Sanjeev Kumar Singh Rs 1,685 (an upside of 24% from the CMP). Our target valuation is at a discount to
sanjeevsingh@[Link] peers due to higher contribution of government incentives to its EBIDTA which will
+91 22 6704 8017 start declining after FY24E. We initiate coverage on the stock with a BUY rating.
Rahul Jain
rahuljain@[Link]
+91 22 6704 8066

Harsh Mittal
harshmittal@[Link]
+91 22 6704 8098
Investors are advised to refer disclosures made at the end of the research report.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 228
01 September 2021 Birla Corporation

Story in charts
Exhibit 1: Capacity & sales volume increased at a CAGR of 8.6/8.1% Exhibit 2: Capacity utilisation at 85%+ post FY19
18

15.4

15.4

15.4

15.4
90 88 87

14.1
13.8
16 85

13.4
13.1

12.5
85 83
14

10.1
12

9.8
80 77
77 77
9.0

9.0

9.0
76
8.3

8.1
10
7.6
(mt)

7.3
7.1

(%)
75 73 73
6.5

6.4

8
5.9

5.9
5.7

6 70
4 64
65 63
2
0 60
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Capacity (mtpa) Sales volume (mt) Capacity utilization (%)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research; *Q1FY21 utilisation was
impacted due to nation-wide lockdowns

Exhibit 3: Clinker capacity being increased by 30% Exhibit 4: Grinding capacity being increased by 33%
15 25

12 20

9 15
(mt)

(mt)

6 10

3 5

0 0
FY21 Q2FY22E Q4FY22E FY22E FY21 Q4FY22E Q4FY23E FY23E

Current capacity Chanderia Mukutban Expanded Capacity Current capacity Mukutban Kundanganj Expanded Capacity

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 5: Estimated sales-mix of the company in FY21 Exhibit 6: Sales-mix to improve in the MP/Western markets
3%
10%
18% 24% 19%

North North

East 22% East

UP UP

MP MP

West 26% West

26%

29%
23%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 229
01 September 2021 Birla Corporation
Exhibit 7: Incentives as % of EBITDA in FY20; highest for BCORP Exhibit 8: EBITDA/ton expected to moderate in FY22E
amongst peers

1,245
16 Incentives (% of EBITDA) 1,400 100

1,028
1,022
14 13.4 80
1,200

983
967
967
12 60
1,000

704
40

686
653
(Rs/ton)

621
10 800

547

(%)
529
20
(%)

8 600

356
6.4 6.5 0

321
286
6 400
-20
4.1
3.6 200
4 -40
1.9
2 1.1 0 -60

FY12

FY17
FY10
FY11

FY13
FY14
FY15
FY16

FY18
FY19
FY20
FY21
FY22E
FY23E
FY24E
0
ACC Ambuja UltraTech Shree JK cement Ramco Birla Corp EBITDA/ton YoY change (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 9: Leverage to reduce… Exhibit 10: ...while return ratios to improve post FY22E
6.0 5.4 14
5.0 12.2 12.5
4.0
4.0 3.5 12 10.9 10.8
2.5 2.5 2.6 10.5 10.4
3.0 10.0
2.0
1.3 10 9.0
2.0 1.0 8.9
(x)

(%)

0.8 0.7 0.7 0.6 0.6 0.5 8.2 9.7

1.0 0.3 9.3
(0.2) 8
0.0 6.6 6.5 8.2 8.3
7.7
-1.0 6
(2.3) 6.1 5.8
-2.0 6.0
4.1
-3.0 4
FY19
FY16

FY17

FY18

FY20

FY21

FY22E

FY23E

FY24E

FY18 FY19 FY20 FY21 FY22E FY23E FY24E

RoE RoCE RoIC
Net D/E Net Debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 11: 1- year forward EV/EBITDA Exhibit 12: 1-year forward EV/ton
15
140
12 120
100
9
(US$/ton)

80
(x)

6 60
40
3
20

0 0
Aug-11

Aug-14
Aug-09

Aug-10

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-11

Aug-12

Aug-13
Aug-09

Aug-10

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1yr fwd EV/ton Mean Std-1 Std+1

1-year forward EV/EBITDA Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 230
01 September 2021 Birla Corporation

Company Background
Birla Corporation (BCORP) is the flagship company of the M.P. Birla Group - a leading
BCORP has a clinker/cement capacity of
nd industrial group with its other major companies being Hindustan Gum & Chemicals
10mtpa/15.4mptpa. It is the 2 largest
Ltd, Vindhya Telelinks Ltd, Universal Cables Ltd and Reliance Cement Company
player in terms of capacity in the Central
region. It plans to increase Private Limited. BCORP was established in 1919 as a jute manufacturing company.
clinker/cement capacity to Over time, it has transformed into a multi-product business with cement
13mtpa/20.5mtpa by FY23E. manufacturing becoming its core business. In FY21, the cement segment constituted
95.7% of the company’s revenue.
The company has a 15.4mtpa cement grinding capacity with manufacturing units in
the Central (8.5mtpa), Northern (4mtpa), Eastern (2.3mtpa) and Western (0.6mtpa)
regions. It has a clinker capacity of 10mtpa (6.7mtpa in the Central region and
3.3mtpa in the Northern region). The company acquired 100% shares of Reliance
Cement Company Private Limited (RCCPL), a subsidiary of Reliance Infrastructure
Limited in Aug’16, which had a clinker/cement capacity of 3.3mtpa/5.58mtpa. This
acquisition was completed at an Enterprise Value of Rs 48bn.
BCORP plans to increase its clinker capacity to 13mtpa (integrated plant at
Mukutban, Maharashtra and de-bottlenecking of the existing plant at Chanderia,
Rajasthan) while grinding capacity to 20.5mtpa (3.9mtpa at Mukutban and 1.2mtpa
at the existing location at Kundanganj, Uttar Pradesh) by FY23E.
It has a total power capacity of 106MW out of which, 54% is coal-based, 34% is
WHRS and 12% is solar power. Power generation capacity will be increased to
156.6MW after the commissioning of the 40MW coal-based thermal power plant and
10.6MW of WHRS capacity at Mukutban, Maharashtra.
Exhibit 13: Manufacturing Units
Clinker capacity Cement capacity Thermal Power WHRS Capacity Solar Capacity
Plant Location State
(mtpa) (mtpa) (MW) (MW) (MW)
Satna Madhya Pradesh 3.4 2.2 27.0 15.0 2.2
Maihar Madhya Pradesh 3.3 3.0 12.3 7.7
Raebareli & Raebareli Hitech Uttar Pradesh - 1.3
Kundanganj* Uttar Pradesh - 3.2
Central-Total 6.7 9.7 27.0 27.3 9.9
Chanderia Rajasthan 3.7 4.0 29.8 9.0 3.0
North-Total 3.7 4.0 29.8 9.0 3.0
Durgapur West Bengal - 2.3
East-Total - 2.3 - - -
Butibori Maharashtra - 0.5
West-Total - 0.5 - - -
Planned Capacities by FY22E
Mukutban Maharashtra 2.6 3.9 40.0 10.6
Grand Total 13.0 20.4 96.8 46.9 12.9
Source: Company, Systematix Institutional Research, *1.2mtpa expansion under progress

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 231
01 September 2021 Birla Corporation
BCORP sells cement under various brands including MP Birla Cement Perfect Plus,
Samrat Advanced, Ultimate Ultra, Unique, Samrat, Ultimate, Chetak, PSC, Multicem
& Concrecem. Its key markets are Uttar Pradesh, Madhya Pradesh, Rajasthan,
Haryana, Bihar, Bengal, Delhi, Gujarat and Maharashtra.
It is also engaged in the Jute business which has a capacity of 52,631mtpa and
contributed to 4.2% of the total revenue in FY21. Vindhyachal Steel Foundry is a unit
of BCORP at Satna. It has access to the latest technology and infrastructure to
manufacture castings required by cement plants.
Exhibit 14: Revenue mix Exhibit 15: EBITDA mix
100 5 5 4 100 2 2 2
8 6 5 3
90 90
80 80
70 70
60 60
(%)

(%)
50 95 95 96 50 97 98 98 98
92 94 95
40 40
30 30
20 20
10 10
0 0
FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

Cement Jute Others Cement Jute Others

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 232
01 September 2021 Birla Corporation

Manufacturing facilities
Exhibit 16: Integrated Satna unit, MP Exhibit 17: Integrated Maihar unit, MP

Source: Company Source: Company

Exhibit 18: Durgapur, West Bengal (2.3mtpa) Exhibit 19: Work in progress at Mukutban, Maharashtra

Source: Company Source: Company

Exhibit 20: Integrated Chanderia unit, Rajasthan Exhibit 21: Dedicated railway siding at Kundangunj

Source: Company Source: Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 233
01 September 2021 Birla Corporation
Exhibit 22: Product portfolio of BCORP

Source: Industry, Systematix Institutional Research

Exhibit 23: Building materials portfolio launched recently

Source: Industry, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 234
01 September 2021 Birla Corporation
Exhibit 24: Annual report highlights
Operational efficiency
Year Demand Scenario & Outlook Expansion plan Key Risks YoY Growth
initiatives

 During FY16, cement  Increase in the

demand was weak due to  0.5mtpa blending unit consumption of fly-ash
low consumption from end- commissioned in Raebareli in and slag for
user sectors and procedural Oct'15. manufacturing blended
delays in clearance for cement.  Rise in logistics
industrial and  Procured equipment like
excavators and rock breakers  Use of higher-quality costs.
infrastructure projects.
for mechanical mining; plans pet coke at Satna  Supply exceeding Volume: 5.7%
 Cement demand is likely to to add more such equipment. instead of coal. demand, leading to Revenue: 3.7%
FY16 be better in FY17 on the
 Received Environmental  Utilising alternate fuel soft cement prices. EBITDA: 17.2%
back of planned spending
on 'Housing for all by 2022', Clearance for the 2nd phase and purchase of power  Non-availability of PAT: -4.4%
of expansion at Chanderia from the exchange at new limestone
'Smart cities' and highway
(2.7mtpa from 1,2mtpa). The rates lower than grid mines.
and infrastructure projects.
plan will be executed once power.
Limited capacity addition
and higher demand should the clearance for additional  Reduction in power
improve capacity limestone mining is received. consumption per ton of
utilization. cement.

 After a spurt in 1QFY17,

cement demand contracted  Acquisition of 100% equity
in 2Q. The core markets shares of Reliance Cement
 Use of pet coke in the  Rising input costs
that the company operates Company Private Limited
thermal plant at such as prices of
in were extensively (RCCPL) was completed on
nd Chanderia and higher pet coke and coal.
affected by heavy 22 Aug'16.
usage of pet coke at the  Delay in setting up
monsoons, with many  This acquisition strengthened kiln in Satna. of new capacities
areas in Rajasthan and the company’s presence in
Madhya Pradesh hit by  The use of high purity due to acquisition
the high-growth Central Volume: -2.6%
floods. imported gypsum and process, delay in
region. Revenue: 33%
FY17 higher use of additives, land acquisition,
 Cement demand suffered a  RCCPL has 3 cement units, an EBITDA: 118%
such as fly ash and slag. increased gestation
setback during 3Q on integrated cement plant at PAT: 31%
 Optimization of the lead period and
account of demonetisation Maihar (Madhya Pradesh)
distance of despatches requirement of
by the Central government. and grinding units at
and change in the rail- several regulatory
 Demand growth is Kundanganj (Uttar Pradesh) clearances.
road mix.
expected to accelerate in and Butibori (Maharashtra),
 Lack of adequate
the medium term and with an aggregate capacity of
availability of sand.
should grow 6-7% YoY till 5.58 MTPA of cement and 3.3
CY20 driven by MTPA of clinker.
government-led initiatives.
 Steps such as higher rural  Various projects
credit, increased Minimum commissioned during the
Support Price and year to meet the emission  Semi-automatic truck  Higher power and
allocation for rural, norms at the Satna plant. loading machines were fuel and freight
agricultural and allied
sectors in the Union Budget  Stock pile of 20,000tons installed to increase costs.
capacity and 2 conveyor belts efficiency and reduce Volume: 1.5%
2019 augur well for cement
manpower at the  Non-resolution of
demand in the coming constructed for additional Revenue: 32%
FY18 Chanderia unit. restrictions on sand
year. storage of clinker at the EBITDA: 29.4%
mining in various
Durgapur unit.  A new tertiary crusher PAT: -30%
 The move to set up an states.
 150 tph capacity crusher was installed at the
Affordable Housing Fund of
Satna plant which will  Restriction on the
Rs 250bn to ease credit to along with conveyor belts
increase the output. use of pet coke.
homebuyers shall support installed at Chanderia plant
cement demand from the for the crushing of Laterite
housing segment. and Ochre.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 235
01 September 2021 Birla Corporation
 Work started on the
Greenfield integrated plant
of 3.9mtpa at Mukutban,
Maharashtra along with
40MW/10.6MW CPP/WHRS
 Cement demand is  Higher power and
plants. This plant is expected  Restructured the
expected to grow by 6-7% to get commissioned in FY22 fuel and freight
logistics function for
YoY on a pick-up in (Capex: Rs 24.5bn). costs.
both inward and
affordable housing and
 Grinding unit expansion by outward movement.  Non-availability of Volume: 12.1%
government infrastructure railway rakes. Revenue: 14.2%
FY19 projects.
1.2mt at Kundanganj, UP has  Improving energy-usage
also started. (Capex: Rs efficiencies in plants.  Non-compliance EBITDA: 17.6%
 The real estate sector is 2.5bn). with new PAT: 66.1%
likely to benefit from the  Economical sourcing of
 Expansion of clinker environmental
changes in GST rates and a RM such as fly-ash &
production capacity from norms.
reduction in repo rate. gypsum.
3,600 to 5,500 TPD at
Chanderia, Rajasthan.
 12.25 MW WHRS to be
commissioned at Maihar by
1QFY20.
 Cement demand was not in  Greenfield Integrated plant
line with expectation in of 3.9mtpa at Mukutban,
FY20. Demand was Maharashtra has been  Scaling up of captive
impacted due to the delayed by few months due coal production from  Revival and
general elections and to COVID-19. Sial Ghogri Captive Coal sustenance of
economic slowdown. mine. demand post
COVID-19 related  Expansion project of
Kundanganj plant has been  Ramping up of newly COVID-19.
lockdowns in Mar’20 Volume: -0.1%
further worsened the put on hold for the time installed WHRS at  Non-availability of
Revenue: 5.6%
FY20 situation. Cement demand being to restrict debt and Maihar and Solar power railway rakes.
EBITDA: 41%
is estimated to fall 2% YoY conserve liquidity given the units.  Non-compliance PAT: 97.6%
in FY20. uncertainty created by  Railway siding facility at with new
COVID-19. Kundanganj plant was environmental
 Cement demand is bound
to be impacted in FY21, the  Expansion of clinker completed, which norms.
extent of which will depend production capacity from should lead to reduced
on the easing of the 3,600 to 5,500 TPD at freight costs.
lockdowns and the return Chanderia, Rajasthan is in
to normalcy. progress.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 236
01 September 2021 Birla Corporation
Exhibit 25: Annual report highlights
Name Designation Background
A member of the Managing Committee of Assocham and Executive Committee member of
the Indian Chamber of Commerce where he has also served as Vice President. He is a
Mr. Harsh Lodha Chairman Chartered Accountant and has served as a member of the Accounting Standards Board of the
Institute of Chartered Accountants of India and a member of the Working Group on
Corporate Governance, set up by the Department of Company Affairs, Government of India.
Has around 38 years of experience, including 36 years in the cement industry. He held senior
positions in ACC, Dangote Cement Plc, Adani and Reliance ADAG groups. He holds an
Managing Director & Chief Electrical Engineering degree from the IIT (BHU) and a PG degree in Industrial Engineering
Mr. Arvind Pathak
Executive Officer and Management. Skilled in manufacturing, operations management, strategic planning,
project development and execution, he has a strong track record of planning & executing
long-term business plans.
Was the former Managing Director of CEAT Tyres Ltd and is a Mechanical Engineer. A
Management Advisor by profession, he has served in senior management positions in diverse
fields with large corporates and MNCs. He has worked in the areas of design and project
Mr. Pracheta Majumdar Chief Management Advisor management of chemicals, petrochemical and fertilizer plants. He has worked with
Hindustan Unilever Ltd for about 12 years. He attended various international management
courses organized by Unilever and Executive Development Programmes and Advanced
Management Programmes conducted by Stanford University and Harvard Business School.
Is a mechanical engineer, with post-graduation from IIT, Kanpur. He started his career in
Mr. Asim Executive President
1975 with ACC Ltd and joined the Lafarge Group in 1998. He was Operations Director of
Chattopadhyay (Operation)
Lafarge Surma, Bangladesh, till May 2015.
Before joining BCORP, he was with the Indian associate firms of Ernst & Young and BDO; has
Mr. Aditya Saraogi Chief Financial Officer served several large clients including ITC, Bharti Airtel, Lafarge India, Peerless, iGate and
Reliance Communications.
Has a professional background in sales and marketing in diverse fields, including tyre and
cement. A keen strategist with managerial & functional expertise honed in multinational
Mr. Dev Banerjee President, Sales & Logistics
organizations across India, Nepal and Bangladesh, he carved out a niche for himself in sales &
marketing. Before joining BCORP, he was with UltraTech Cement.
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 237
01 September 2021 Birla Corporation

Investment Analysis
Focus on increasing capacities
BCORP is amongst the few mid-cap companies that are focused on increasing their
capacities through the organic/inorganic expansion routes. In Aug’16, it acquired
Reliance Cement Company Private Limited (RCCPL) with a clinker/grinding capacity of
3.3mtpa/5.58mtpa (EV: Rs 48bn). RCCPL had an integrated plant in Maihar, Madhya
Pradesh and grinding units in Kundanganj, Uttar Pradesh and Butibori, Maharashtra.
Before the acquisition of RCCPL, BCORP had increased its grinding capacity at a CAGR
of 7% between FY10-16 (increased capacity at Satna, Chanderia and Durgapur
plants). Between FY10-21, its grinding capacity increased at a CAGR of 8.1%, leading
to a sales volume CAGR of 8.1% in this period despite lower volumes in FY20/21 due
to COVID-19-led issues.
Exhibit 26: Capacity/sales volumes increased at a CAGR of 8.1% over FY10-21

16.2

16.2

16.2

16.2
18

14.1
13.8
16

13.4
13.2

12.5
14

10.6

10.1
10.1

10.1

10.1
12
9.4
8.2

8.1
10

7.6
(mt)

7.3
6.5

6.4
8
5.9

5.9
5.7

6
4
2
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Capacity (mtpa) Sales volume (mt)

Source: Industry, Systematix Institutional Research

Higher capacity utilisation has led to planning for future growth

BCORP has been operating its grinding capacity at an average utilisation of over 90%
since FY19 (except in 1QFY21 when its volumes were impacted due to the
nationwide lockdown). Its average grinding capacity utilisation was around 80%
between FY14-18 - much better than the regional utilisation trends. In FY17, the
capacity utilisation of the acquired plants of RCCPL was around 69% which led to an
overall lower utilisation rate of 78% although its own plants had operated at 80.4%
capacity during the year. The increase in blended cement sales in FY19 helped the
company improve its capacity utilisation.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 238
01 September 2021 Birla Corporation
Exhibit 27: Capacity utilisation at 90% post FY19 Exhibit 28: Improvement in blended cement sales
90 88 94
87
85 92.0
85 83 92 92.0

90
80 77
77 77
76
88
(%)

73

(%)
75 73
86 85.0 88.0
70
84 82.9
63 64 81.5
65 83.0
82
60
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 80
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Capacity utilization (%) Blended Cement (%)
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
*1QFY21 utilisation was impacted due to the nationwide lockdown

Clinker/grinding capacities to increase by 30%/33%; aims to achieve 25mtpa

capacity by 2025
Higher capacity utilisation of the existing plants led to the planning of future growth
opportunities. BCORP is on the verge of commissioning a greenfield plant with a
clinker/cement capacity of 2.6mtpa/3.9mtpa at Mukutban, Maharashtra. Capex for
this project is estimated at Rs 24.5bn, which includes a 40MW captive power plant, a
10.6MW Waste Heat Recovery System and a railway siding. It is also increasing the
clinker capacity at its Chanderia plant from 3,600tpd to 5,500tpd through de-
bottlenecking at a capex of Rs 1.5bn. The grinding capacity at its Kundanganj, Uttar
Pradesh plant is being increased by 1.2mt with a capex of Rs 2.5bn; this is expected
to get completed in FY23E.
The management plans to further increase the grinding capacity to 25mtpa by 2025.
The company may consider expansion at the Maihar/Chanderia plants in the next leg
of capacity expansion.
Exhibit 29: Clinker capacity being increased by 30% Exhibit 30: Grinding capacity being increased by 33%
15 25

12 20

9 15
(mt)

(mt)

6 10

3 5

0 0
FY21 Q2FY22E Q4FY22E FY22E FY21 Q4FY22E Q4FY23E FY23E

Current capacity Chanderia Mukutban Expanded Capacity Current capacity Mukutban Kundanganj Expanded Capacity

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 239
01 September 2021 Birla Corporation
The new capacity will help BCORP to a) achieve higher sales volumes - 10% CAGR
estimated between FY21-24E and b) have a wider geographical diversification -
Maharashtra expected to account for 10% of sales volumes in FY24E vs. 3% at
present. The new plant at Mukutban will also benefit from the pre-established
distribution network for the Butibori grinding unit.
Exhibit 31: Estimated sales-mix of the company in FY21 Exhibit 32: Sales volume to improve in the MP/Western markets
post commissioning of the Mukutban plant
3%
10%
19%
18% 24%

North North

East 22% East

UP UP

MP MP

26% West
West
26%

29%
23%

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

We expect the company to sell 50% of its volumes from the Mukutban plant in
Maharashtra and the balance in Madhya Pradesh.
Exhibit 33: The Mukutban plant will cater to the MP and Maharashtra markets
Plant City State Distance (kms)
Mukutban Bhusawal Madhya Pradesh 445
Mukutban Chindwara Madhya Pradesh 290
Mukutban Khandwa Madhya Pradesh 522
Mukutban Burhanpur Madhya Pradesh 464
Mukutban Bhopal Madhya Pradesh 516
Mukutban Aurangabad Maharashtra 451
Mukutban Nanded Maharashtra 254
Mukutban Latur Maharashtra 371
Mukutban Solapur Maharashtra 492
Mukutban Tuljapur Maharashtra 445
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 240
01 September 2021 Birla Corporation

Incentives to continue supporting profits in the long term

BCORP gets incentives for its: 1) Maihar plant (75% of net SGST reimbursement on
sales in the state of MP), which will expire in Nov’21 and 2) Kundangunj grinding unit
(80% of net SGST reimbursement on sales in the state of UP), which will continue till
mid-FY24E for the existing capacity. However, the expanded capacity will be eligible
for incentives for seven years. The new capacity at Mukutban, Maharashtra will be
eligible for 50% of gross SGST reimbursement for seven years on sales in the state of
Maharashtra. Incentives constituted 13.4% of EBITDA in FY20 (11.7% of EBITDA in
FY21 as per our estimates). We expect incentives to be in the range of Rs 1.6-2.1bn
(10-11% of EBITDA) till FY24E and reduce gradually thereafter. However, if the
company opts to increase the capacity of its Maihar plant (highly likely) and the
incentive policy of the MP state government continues, there will be a further
increase in incentives.
Exhibit 34: Incentives projection for the Kundangunj plant
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E
Capacity (Kundanganj) 2.4 2.4 2.4 2.4 2.4 3.6 3.6 1.2 1.2 1.2 1.2 1.2 1.2
UP volumes (50%) 1.02 1.02 1.116 0.9 1.08 1.08 1.53 0.51 0.51 0.51 0.51 0.51 0.255
Selling price (Rs/bag) 320 326 333 340 340 340 340 340 340 340 340 340 340
VAT 45 46 47 48 48 48 48 48 48 48 48 48 48
Re-imbursement (%) 80 80 80 80 80 80 80 80 80 80 80 80 80
Amount received (Rs mn) 731 746 832 685 822 822 1,164 388 388 388 388 388 194
Source: Company, Systematix Institutional Research

Exhibit 35: Incentives projection for the Mukutban plant

Particulars FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E
Capacity (Mukutban) 2.0 3.9 3.9 3.9 3.9 3.9 3.9 2.0
Maharashtra volumes (50%) 0.3 1.5 1.7 1.7 1.7 1.7 1.7 0.9
Selling price (Rs/bag) 300 306 312 318 318 318 318 318
VAT 42 43 44 45 45 45 45 45
Re-imbursement (%) 50 50 50 50 50 50 50 50
Amount received (Rs mn) 123 627 724 739 739 739 739 379
Source: Company, Systematix Institutional Research

Note that the contribution of incentives to EBIDTA for BCORP is the highest within
the cement industry.
Exhibit 36: Incentives as % of EBITDA in FY20; highest for BCORP amongst peers

16 Incentives (% of EBITDA)
14 13.4

12

10
(%)

8
6.4 6.5
6
4.1
3.6
4
1.9
2 1.1

0
ACC Ambuja UltraTech Shree JK cement Ramco Birla Corp

Source: Companies, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 241
01 September 2021 Birla Corporation
Cost-saving initiatives should support profitability
Over the years, BCORP has undertaken cost-saving initiatives like the installation of
waste heat recovery systems (WHRS), solar power plants and participation in coal
block auctions that helped it secure two coal mines (Bikram and Brahampuri in MP)
in Nov’19.
It commissioned a 12.25MW WHRS at Maihar in FY20 and 12MW solar power plants
(3MW at Chanderia, 1MW at Satna and 7.7MW at Maihar plant) at various locations
in FY20. It constructed a railway siding at the Kundanganj grinding unit and
rationalised road freight during FY20. WHRS contributed to 24% of power generation
in FY20 and we expect it to contribute to 28-29% of power generation till FY24E. We
believe 50%+ of the company’s power requirements were met through purchase;
however, the dependence on external power should decline going forward to
32%/34% in FY23/24E.
Exhibit 37: Green power to contribute to over 30% of Exhibit 38: … and 20-21% of power consumption by FY24E
power generation…
100 0 1 1 1 1 1 1 4 3 3 3 100
90 22 23 21 90
25 26 27 24
80 29 29 28 29 32 33 34 36
80 38 43 42 41
70 70 54 58 53
0 0 2
60 60 15 0 2
17 0 2 2
16 19 19
(%)

(%)

50 50 13 17 18
0 0
40 40 10 0 11
78 74 73 77 78 72 75 11
67 67 69 68
30 30
53 49
20 46 44 40 46 44
20 36 35 39
30
10 10
0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E

CPP WHRS Solar Plant CPP WHRS Solar Plant Purchased

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

While the company has started to benefit from its WHRS/solar power plants, we
expect further cost savings of 1) Rs 41/ton when coal mining starts from its allotted
mines and 2) Rs 231mn (Rs 12-13/ton on total volumes) after the commissioning of
the Mukutban plant as clinker to the Butibori grinding unit will be supplied from this
plant (currently from the Maihar plant).
Exhibit 39: Cost savings estimated from coal blocks
Cost if pet
Annual Landed cost Savings/ton
Coal cost coke/Coal Savings
Coal block Extractable Reserves (mt) extraction for use blended-
(Rs mn) mix used (Rs mn)
(mt) (Rs/ton) FY23E
(Rs mn)
Bikram, MP C grade 3.9 0.13 2,893 372 756 384 23
D grade 1.9 0.06 2,778 179 329 150 9
F grade 2.6 0.09 2,668 231 278 47 3
Brahampuri,
C & D grade 12.3 0.36 3,563 1,283 1,977 694 41
MP
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 242
01 September 2021 Birla Corporation
The company will have cost advantages for the grinding unit at Butibori, Maharashtra
as the cost of clinker transportation to this plant will decline significantly. The
distance between the Butibori unit and the new capacity at Mukutban, Maharashtra
is around 140km compared to about 508km from the Maihar, Madhya Pradesh plant.
BCORP is likely to save Rs 231mn in clinker transfer costs for the Butibori,
Maharashtra plant after the commissioning of the new unit at Mukutban.
Exhibit 40: Cost savings estimated for the Butibori grinding unit
Particulars FY23E
Capacity (mtpa) 0.5
CU (%) 80
Production (mt) 0.4
Clinker required (mt) 0.3
Distance from Mukutban plant (km) 140
Distance from Maihar plant (km) 508
Reduction in distance travelled (km) 368
Savings on clinker transfer (Rs mn) 231
Source: Company, Systematix Institutional Research

Higher contribution from premium products

BCORP has a range of premium products: It launched Birla Samrat Unique Cement
(slag based) in 2011, Birla Samrat Ultimate Cement in 2014, MP Birla Cement
CONCRECEM (OPC 43 and 53 grades) and Multicem PPC in Mar’17, MP Birla Perfect
Cement (rebranding of Reliance Perfect Cement brand) in 4QFY17, Ultimate Ultra and
Perfect Plus in FY18, Samrat Advanced (a premium variant of the company’s heritage
MP Birla Cement Samrat brand) in FY20. In Jan’19, MP Birla Cement Perfect Plus
introduced a range of construction chemicals for waterproof homes, and wall putty.
During FY20, the sales of MP Birla Cement Unique (sold in the Eastern region) grew
18% YoY. The sales of premium cement grew 8% YoY and contributed to 40% of
trade volumes in FY20. The share of premium products improved to 50% of trade
volumes in FY21.
The higher share of blended cement sales also resulted in higher clinker to cement
conversion ratio (C:C ratio). We believe slag cement production is ~10% of the total
volumes.
Exhibit 41: Increasing share of premium products Exhibit 42: Higher blended cement sales lead to higher C:C ratio
60
2 94
50 1.7 1.7
50 2 92
1.6
40 1.6 90
38 2
40 1.6
88
30 2
1.5 86
(%)

30
(%)
(x)

2 1.5
1.4 84
20 1
82
1 80
10
1 78
0 1 76
FY18 FY19 FY20 FY21 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Premium product as % of trade volumes C:C ratio (x) Blended cement (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 243
01 September 2021 Birla Corporation

Financial Analysis
We expect the company’s cement volumes to grow at a CAGR of 10.1% over FY21-
24E led by the commissioning of new plants. We expect the company’s utilisation
rate to be at 90% in FY22E and decline to 77% in FY23E post the commissioning of
the Mukutban plant. Capacity utilisation is expected to be 83.9% in FY24E. We
estimate cement realisation to grow at a CAGR of 0.7% over FY21-24E considering
lower cement prices in the Western region as compared to the Central markets.
Higher sales volumes/realisation should lead to a revenue CAGR of 11.9% over FY21-
24E.
Exhibit 43: Expect 10.7% CAGR in sales over FY21-24E… Exhibit 44: …led by 10.1%/0.7% CAGR in volumes/NSR

100 92.2 35 14% 12% 12%

90 83.6 30 12%
80 74.3 10% 9% 9%
69.2 67.9 25 7%
70 65.5 8% 6%
57.3 20
60 6%
(Rs bn)

(%)
(%)
50 15 4% 2%
1% 1%
40 10 2% 0% 0%
30 0%
5 -3%
20 -2%
10 0 -4%
0 -5 -6%
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY19 FY20 FY21 FY22E FY23E FY24E
Net sales YoY growth (%) (RHS) Sales volume Cement NSR

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

BCORP’s EBITDA is expected to grow at a CAGR of 11.5% during FY21-FY24E led by

higher sales volumes. We believe that the profitability of the Mukutban plant will be
Rs 250-300/ton lower than the existing plants as cement prices are volatile in the
Maharashtra markets.
Higher profitability in FY20/21 (EBITDA/ton of Rs 967/Rs 1,022 in FY20/21 vs. Rs 686
in FY19) led to profits growing at a CAGR of 56.9% between FY19-21. We expect the
company’s profits to grow at a slower CAGR of 13.5% over FY21-24E led by higher
depreciation and interest expense (ETR was 11.6% in FY21).
Exhibit 45: Estimate EBITDA CAGR of 10.3% between FY21-24E… Exhibit 46: …while adjusted PAT CAGR at 11.5% in the same period
20 22 10 120
18 9
20 100
16 8
14 80
18 7
12 6 60
(Rs bn)

(Rs bn)
(%)

10 16
(%)

5 40
8 4
14 20
6 3
0
4 2
12
2 1 -20
8.1 9.5 13.4 13.7 14.1 16.1 18.4 1.5 2.6 5.1 6.3 6.0 6.8 8.7
0 10 0 -40
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
EBITDA OPM (%) (RHS) Adj. PAT YoY growth (%) (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 244
01 September 2021 Birla Corporation
Improvement in cement prices (6.1%/2.1% YoY increase in FY20/21) and cost
controls in FY21 led to a strong improvement in EBITDA/ton (22.1% CAGR between
FY19-21). We expect EBITDA/ton to decline by 5.4% in FY22E due to higher energy
and variable costs. We expect EBITDA/ton to grow at a CAGR of 3% over FY22-24E.
Exhibit 47: EBITDA/ton expected to moderate in FY22E

1,245
1,400 100

1,028
1,022
1,200 80

983
967

967
60
1,000

704
40

686
653
(Rs/ton)

621
800

547

(%)
529
20
600

356
0

321
286
400
-20
200 -40
0 -60
FY10

FY15

FY20
FY11
FY12
FY13
FY14

FY16
FY17
FY18
FY19

FY21
FY22E
FY23E
FY24E
EBITDA/ton YoY change (%) (RHS)

Source: Company, Systematix Institutional Research

BCORP’s operating cash generation (OCF) has improved continuously during FY16-
FY20, led by strong improvement in profitability post the acquisition of Reliance
Cement. It generated OCF of Rs 52.5bn between FY16-21 and we expect it to
generate OCF of Rs 43.9bn between FY21-24E.
The company had incurred a capex of Rs 27bn between FY16-21 and generated free
cash (FCF) of Rs 25.2bn in that period. It has consistently generated FCF every year
since FY13; despite our capex assumption of Rs 22bn over FY21-24E, we expect it to
to generate FCF every year (cumulative FCF of Rs 21.9bn between FY21-24E).
Exhibit 48: OCF to remain high; FCF to improve in FY23/24E

20 12

15 10
10
8
5
(Rs bn)

6 (Rs bn)
0
4
-5

-10 2

-15 0
FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

CFO Capex FCF (RHS)

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 245
01 September 2021 Birla Corporation
BCORP’s consolidated gross debt increased to Rs 42.5bn in FY17 from Rs 12.8bn in
FY16 due to the acquisition of RCCPL. Despite the capex for the Mukutban plant (Rs
17.3bn spent over FY20/21), the gross debt remained at Rs 40.5bn in FY21. We
expect peak gross debt of Rs 43.5bn in FY22E, which should reduce to Rs 31bn by
FY24E. Net debt was Rs 34.1bn in FY21 vs. Rs 33.5bn in FY20 and we expect it to
reduce to Rs 23.8bn by FY24E.
Net debt/EBITDA of the company deteriorated to 5.4x in FY17 post the acquisition of
RCCPL and improved gradually to 2.5x in FY21. We expect net debt/EBITDA to be at
2.6x in FY22E and improve thereafter to 2x/1.3x in FY23/24E.
Exhibit 49: Gross debt to peak in FY22E… Exhibit 50: …leading to a reduction in leverage

50 6.0 5.4
5.0 4.0
40 4.0 3.5
2.5 2.5 2.6
3.0
30 2.0
2.0 1.0 1.3

(x)
(Rs bn)

0.8 0.7 0.7 0.6 0.6 0.5

20 1.0 0.3
(0.2)
0.0
10 -1.0
(2.3)
-2.0
0
-3.0
FY18
FY16

FY17

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY16

FY17

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E
-10
Gross Debt Net Debt Net D/E Net Debt/EBITDA

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

BCORP’s RoE improved to 12.2% in FY21 vs. 5.8%/10.9% in FY19/FY20 led by better
realisations; this in turn led to higher profits. Its EBIT margin improved by 500bps to
15.5% in FY20 and stabilised at 15.7% in FY21. We expect its EBIT margin to remain
stable at 15.4% in FY22/23E and improve to 16.4% in FY24E. Our assumption of
higher effective tax rate (ETR) and lower profitability will lead to a lower RoE of
10.5% in FY22E post which, we expect its RoE to improve to 10.8%/12.5% in
FY23/24E.
Exhibit 51: RoE expected to improve post a decline in FY22E
Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT/PBT 96.3% 80.6% 74.1% 88.4% 78.0% 78.0% 78.0%
PBT/EBIT 29.1% 46.1% 63.7% 66.9% 72.4% 72.8% 79.2%
EBIT/Sales 9.6% 10.5% 15.5% 15.7% 15.4% 15.4% 16.4%
Asset turnover (x) 0.66 0.71 0.72 0.67 0.64 0.70 0.76
Assets/Equity (x) 2.28 2.10 2.07 1.98 1.88 1.79 1.62
ROE (%) 4.1 5.8 10.9 12.2 10.5 10.9 12.5
Source: Company, Systematix Institutional Research

The company’s RoCE improved by 330bps between FY19 and FY21 to 9.3%. We
expect it to decline to 7.7% in FY22E led by higher depreciation expense and lower
profitability. RoCE is expected to be at 8.3%/9.7% in FY23/24E. The RoIC is expected
to be at 8.2%/8.9%/10.4% in FY22/23/24E vs. 10% in FY21.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 246
01 September 2021 Birla Corporation
Exhibit 52: Return ratios to improve after a decline in FY22E

14
12.2 12.5
12 10.9 10.8
10.5 10.4
10.0
10 9.0 8.9

(%)
8.2 9.7
9.3
8
6.6 6.5 8.2 8.3
7.7
6 6.1 5.8
6.0
4.1
4
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
RoE RoCE RoIC

Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 247
01 September 2021 Birla Corporation

Cash flow analysis & corporate governance

FCF generation: BCORP generated cumulative FCF of Rs 25.2bn between FY17-21.
FCF utilisation: Of the total FCF generation, BCORP paid ~12% (~Rs 3bn) towards
dividend (including dividend tax). Gross debt of the company has reduced by Rs2.1bn
in last 5 years (7% of FCF). Cumulative interest payment is 61% of FCF in last 5 years.
FCF expectation: We estimate FCF to decline to Rs 0.75bn in FY22E led by the capex
requirement for the Mukutban (3QFY22E-end) and Kundangunj (~2HCY22E)
expansion projects. However, its FCF is expected to increase to Rs 9.7bn/Rs 11.4bn in
FY23E/FY24E.
Earnings quality: During the last 10 years, BCORP has earned a cumulative PAT of ~Rs
27bn against which it generated an OCF of Rs 65bn (2.4x of profits).
Exhibit 53: FCF of Rs 21.9bn over FY22-24E Exhibit 54: Healthy cash flow quality
12 5 80 74 280
4.5 70
10 270
4 60 53
3.5

(Rs bn)
8 50 260
3 37

(%)
40
(Rs bn)

(%)

6 2.5 27 250
30
2 20
20 15
4 240
1.5
10
1
2 - 230
0.5 3Yrs 5Yrs 10Yrs
5.3 6.4 3.5 5.2 0.7 9.7 11.4
0 0 Cumulative PAT
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Cumulative OCF
FCF FCF yield (%) (RHS) Cumulative OCF as % of Cum. Pat- (RHS)

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Exhibit 55: Contingent liabilities

Contingent liabilities (Rs mn) FY18 FY19 FY20
Sales Tax, VAT, CST and Entry Tax matters 1,723 1,658 1,655
Excise Duty, Service Tax, Goods & Service Tax and
817 1,005 1,008
Custom Duty matters
Others 1,723 1,578 1,578
Total 4,263 4,241 4,241
% of net-worth 10% 9% 9%
Source: Company, Systematix Institutional Research

Exhibit 56: Other key monitorables

Particulars FY16 FY17 FY18 FY19 FY20
Remuneration to Directors & KMPs (Rs mn) 48.2 65.6 69.4 76.6 69.6
% of PBT 2.4% 2.8% 4.3% 2.4% 1.0%
Auditor's remuneration (Rs mn) 7.6 10.4 7.8 9.2 9.8
% of PBT 0.4% 0.5% 0.5% 0.3% 0.1%
Pledged shares (%) - - - - -
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 248
01 September 2021 Birla Corporation

Systematix vs. Consensus

Our revenue and margin estimates are in-line with the Bloomberg consensus for
FY22E/FY23E/FY24E. We estimate BCORP’s operating profit to grow at a 10.3% CAGR
during FY21-FY24E led by 1) higher production capacity owing to the commissioning
of the Mukutban and Chanderia units, 2) cost savings led by the higher share of
renewables in the power mix & BCORP receiving logistic cost synergies with the
commissioning of the Mukutban unit, 3) better NSR stability as BCORP strengthens
its position in Western India, neutralising regional price vagaries coupled with an
increasing share of premium products going ahead (50% in FY21).
Exhibit 57: BCORP: Bloomberg vs. our estimates (consolidated financials)
Particulars FY22E FY23E FY24E
Revenues (Rs bn)
Consensus 76 88 99
Systematix est. 74 84 92
% Difference -2% -5% -7%
EBITDA (Rs bn)
Consensus 14 18 20
Systematix est. 14 16 18
% Difference -2% -8% -6%
EBITDA Margin (%)
Consensus 19.1% 20.0% 19.8%
Systematix est. 19.0% 19.3% 19.9%
Difference (bps) (7.8) (71.2) 9.8
Source: Company, Systematix Institutional Research

Exhibit 58: Key assumptions

Particulars FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Sales volume (mt) 12 14 14 13 15 16 18
Cement Realization (Rs/ton) 4,058 4,359 4,626 4,724 4,750 4,770 4,820
Per ton costs (Rs)
Raw material 958 984 938 950 968 943 938
Employee cost 289 268 295 316 307 300 297
Power & Fuel 1,055 1,073 999 974 1,022 1,022 1,028
Freight 960 980 994 950 968 943 938
Other Expenses 728 742 811 853 862 903 931
Total Cost 3,991 4,047 4,037 4,043 4,126 4,112 4,132
Blended EBITDA/ton 653 686 967 1,022 967 983 1,028
Source: Systematix Institutional Research, Company

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 249
01 September 2021 Birla Corporation

Key Downside Risks

1) Further delay in the commissioning of pending capex: BCORP aims to
commission the Mukutban, Maharashtra unit by FY22-end. The plant has got
delayed due to COVID-19 challenges; however; any further delay could lead to
lower-than-estimated volume growth.
2) Inflationary pressures in fuel costs: There has been a sharp increase in the prices
of pet coke, coal and diesel in the last few months. The price of pet coke is up
~75% over the last year while imported coal price has increased 30%+. Current
pet coke prices are up ~40% vs. 4QFY21 consumption price. Though cement
companies are trying to control energy costs by changing their fuel mix (lower
usage of pet coke and Australian coal), continued escalation in coal/pet coke
prices could impact our earnings estimate if the industry is unable to pass on the
cost increases to consumers.
3) Prolonged pandemic-related restrictions/lockdowns: We estimate BCORP to
report 9% cement volume growth in FY22E; however, continued localised
lockdowns in the country could act as a downside risk to our estimates. Besides
hurting demand, lockdowns/restrictions impact the mobilisation of labour at
construction sites and delay the process. However, we derive confidence from the
vaccination pace in India and believe economic recovery and normalcy will be
attained from 2HFY22E onwards.
4) Pressure on cement prices: We estimate cement prices to improve by 1-2% YoY
on the higher base of FY20/21. Any decline in cement prices will put pressure on
earnings given the high sensitivity of earnings to a change in cement prices.
5) Delay in the receipt of incentives: BCORP receives incentives from the state
governments of Uttar Pradesh and Madhya Pradesh. It will also be eligible for
fiscal incentives for its new capacity in Maharashtra. Any delay in the receipt of
incentives from the state governments would lead to an increase in receivables
on the Balance Sheet.

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 250
01 September 2021 Birla Corporation

Valuation and View

BCORP is the 2nd largest player in terms of installed capacity in the Central region and
the 8th largest player on a pan-India basis. It derives over 95% of its revenues from
the Northern, Central and Eastern regions. The company has increased its capacities
through the organic as well as inorganic routes over the last few years which helped
it grow volumes at a CAGR of 8.1% over FY10-21.
It has been operating its grinding capacities at a utilisation rate of over 90% since
FY19 (except in 1QFY21 when demand got impacted due to the nationwide
lockdowns), which is one of the highest in the industry. It is in the process of
increasing its clinker/grinding capacity by 30%/33% by FY23E which would aid future
growth and diversify its regional presence (higher volumes in the West and Madhya
Pradesh markets). The management aims to have a cement capacity of 25mtpa by
2025.
The company incurred a capex of Rs 27bn between FY16-21 and generated free cash
(FCF) of Rs 25.2bn in that period. It consistently generated FCF since FY13; despite
our capex assumption of Rs 22bn over FY21-24E, we expect it to continue to
generate FCF every year (cumulative FCF of Rs 21.9bn between FY21-24E). Net
debt/EBITDA of the company had deteriorated to 5.4x in FY17 post the acquisition of
RCCPL and improved gradually to 2.5x in FY21. We expect net debt/EBITDA to be at
2.6x in FY22E and improve thereafter to 2x/1.3x in FY23/24E.
The RoE of the company improved to 12.2% in FY21 vs. 5.8%/10.9% in FY19/FY20 led
by better realisations; this in turn led to higher profits. EBIT margin improved by 5pp
to 15.5% in FY20 and remained at 15.7% in FY21. We expect the EBIT margin to be at
15.4% in FY22/23E and improve to 16.4% in FY24E. Our assumption of higher ETR
and lower profitability will lead to lower RoE of 10.5% in FY22E. Post that, we expect
RoE to improve to 10.8%/12.5% in FY23/24E.
The stock trades at 10x/8.4x/7x FY22/23/24E EV/EBITDA and USD 99/89/79
FY22/23/24E EV/ton. It has traded at an average EV/EBITDA of 8x in the last 7 years.
With an improvement in profitability (EPS expected to grow at a CAGR of 11.5% over
FY21-24E), return ratios & balance sheet and a continued focus on capacity addition,
we expect it to trade at higher-than-historical multiples going forward. We value the
company at 10x FY23E EV/EBITDA to arrive at a target price of Rs 1,685 (an upside of
24% from the CMP) and initiate coverage with a BUY rating. At our TP, the stock will
trade at 10x/8.4x FY23/24E EV/EBITDA and USD 106/95 FY23/24E EV/ton.
Exhibit 59: 1- year forward EV/EBITDA Exhibit 60: 1-year forward EV/ton
15
140
12 120
100
9
(US$/ton)

80
(x)

6 60
40
3
20

0 0
Aug-11

Aug-14
Aug-09

Aug-10

Aug-12

Aug-13

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21
Aug-11

Aug-12

Aug-13
Aug-09

Aug-10

Aug-14

Aug-15

Aug-16

Aug-17

Aug-18

Aug-19

Aug-20

Aug-21

1yr fwd EV/ton Mean Std-1 Std+1

1-year forward EV/EBITDA Mean Std-1 Std+1

Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 251
01 September 2021 Birla Corporation

FINANCIALS
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net Sales 69,157 67,854 74,322 83,563 92,157 Equity share capital 770 770 770 770 770
Growth (%) 5.6 -1.9 9.5 12.4 10.3 Reserves & surplus 47,291 54,090 59,178 65,268 73,154
Total Expenditure 55,797 54,158 60,210 67,446 73,803 Net worth 48,061 54,860 59,948 66,038 73,925
EBITDA 13,360 13,696 14,112 16,117 18,354 Total Liabilities 99,449 103,992 112,080 112,870 113,557
Growth (%) 40.8 2.5 3.0 14.2 13.9
EBITDA margin (%) 19.3 20.2 19.0 19.3 19.9 Net block 73,246 73,226 99,089 97,308 97,371
Depreciation 3,519 3,708 4,138 4,781 4,937 Capital work in progress 16,039 21,048 3,048 5,048 5,048
EBIT 9,841 9,989 9,975 11,336 13,417 Investment 8,372 7,534 7,534 7,534 7,534
EBIT margin (%) 14.2 14.7 13.4 13.6 14.6 Current Assets 24,099 27,147 27,516 29,082 29,951
PBT 6,815 7,688 7,713 8,760 11,182 Cash & bank balance 2,558 1,773 1,652 2,091 2,488
Tax 1,763 825 1,697 1,927 2,460 Loans & advances 11,160 14,479 14,864 15,459 15,667
Effective tax rate (%) 25.9 10.7 22.0 22.0 22.0 Current liability & Prov. 22,306 24,964 25,107 26,101 26,347
Adjusted PAT 5,052 6,864 6,016 6,833 8,722 Current liabilities 21,637 24,314 24,385 25,292 25,462
Growth (%) 98 36 (12) 14 28 Provisions 669 649 722 809 885
Net Margin (%) 7.3 10.1 8.1 8.2 9.5 Net current assets 1,793 2,184 2,409 2,981 3,604
(Profit)/loss from JVs/Ass/MI - - - - - Misc. exp -
Adjusted PAT After JVs/Ass/MI 5,052 6,864 6,016 6,833 8,722 Total Assets 99,449 103,992 112,080 112,870 113,557
E/O items - (568) - - - Source: Company, Systematix Institutional Research
Reported PAT 5,052 6,296 6,016 6,833 8,722
Growth (%) 97.6 24.6 (4.4) 13.6 27.6
Source: Company, Systematix Institutional Research

Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
PAT 5,052 6,296 6,016 6,833 8,722 Profitability (%)
Depreciation 3,519 3,708 4,138 4,781 4,937 EBITDA Margin 19.3 20.2 19.0 19.3 19.9
Interest Provided 3,877 2,963 2,937 3,265 2,938 Net Margin 7.3 10.1 8.1 8.2 9.5
Chg in working cap 739 (1,177) (346) (133) (226) RoCE 8.2 9.3 7.7 8.3 9.7
Operating Cashflow 13,412 11,789 12,745 14,746 16,371 RoE 10.9 12.2 10.5 10.8 12.5
Capital expenditure (9,907) (8,697) (12,000) (5,000) (5,000) RoIC 9.0 10.0 8.4 9.2 10.8
Free Cash Flow 2,424 4,592 1,421 10,436 12,074 Per Share Data (Rs)
Investments - - - - - EPS 65.6 81.8 78.1 88.7 113.3
Investing Cashflow (11,840) (7,860) (12,000) (5,000) (5,000) CEPS 111.3 129.9 131.8 150.8 177.4
Equity Capital Raised - - - - - BVPS 624.1 712.4 778.4 857.5 959.9
Loans Taken / (Repaid) 2,328 (2,355) 3,000 (5,300) (7,200) DPS 7.5 10.0 10.0 10.0 11.0
Interest Paid 3,877 2,963 2,937 3,265 2,938 Valuations (x)
Dividend paid (incl tax) (696) (928) (743) (836) (928) PER 20.7 16.6 17.3 15.3 12.0
Financing Cashflow (2,012) (6,014) (866) (9,308) (10,973) P/CEPS 12.2 10.4 10.3 9.0 7.6
Net chg in cash (439) (2,085) (120) 439 398 P/BV 2.2 1.9 1.7 1.6 1.4
Opening cash position 1,390 2,558 1,773 1,652 2,091 EV / Sales 2.0 2.0 1.9 1.6 1.4
Closing cash position 950 473 1,652 2,091 2,488 EV / EBITDA 10.3 10.1 10.0 8.4 7.0
Source: Company, Systematix Institutional Research Dividend Yield (%) 0.6 0.7 0.7 0.7 0.8
Gearing Ratio (x)
Net Debt/ Equity 0.7 0.6 0.6 0.5 0.3
Net Debt/EBITDA 2.5 2.5 2.6 2.0 1.3
Working Cap Cycle (days) (4.0) 2.2 3.7 3.9 4.4
Source: Company, Systematix Institutional Research

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 252
01 September 2021 Indian Cement Industry

Institutional Equities Team

Nikhil Khandelwal Managing Director +91-22-6704 8001 nikhil@[Link]
Navin Roy Vallabhaneni President & Head – IE & ECM +91-22-6704 8065 navin@[Link]
Equity Research
Analysts Industry Sectors Desk-Phone E-mail
Rahul Jain Metals & Mining +91-22-6704 8066 rahuljain@[Link]
Ronak Sarda Auto, Auto Ancillaries +91-22-6704 8059 ronaksarda@[Link]
Rakesh Kumar Banking, Insurance +91-22-6704 8041 rakeshkumar@[Link]
Praful Bohra Pharmaceuticals and Healthcare +91-22-6704 8064 prafulbohra@[Link]
Shubhranshu Mishra NBFCs & Diversified Financials +91-22-6704 8024 shubhranshumishra@[Link]
Sanjeev Kumar Singh Cement, Building Materials, Paints +91-22-6704 8017 sanjeevsingh@[Link]
Premal Kamdar Consumer Staples +91-22-6704 8090 premalkamdar@[Link]
Amar Kedia Infra, Cap Goods, Logistics, Consumer Durables +91-22-6704 8084 amarkedia@[Link]
Ashutosh Joytiraditya Consumer, Retail +91-22-6704 8068 ashutoshj@[Link]
Naushad Chaudhary Chemicals, Textiles, Building Materials, Midcaps +91-22-6704 8036 naushadchaudhary@[Link]
Harsh Mittal Cement, Building Materials, Paints +91-22-6704 8098 harshmittal@[Link]
Poorvi Banka Auto, Auto Ancillaries +91-22-6704 8063 poorvibanka@[Link]
Nikhil Shah Banking, Insurance +91-22-6704 8091 nikhilshah@[Link]
Tausif Shaikh Pharmaceuticals and Healthcare +91-22-6704 8046 tausifshaikh@[Link]
Shweta Dikshit Metals & Mining +91-22-6704 8042 shwetadikshit@[Link]
Shilpashree Venkatesh Macro-Strategy +91-22-6704 8078 shilpav@[Link]
Equity Sales & Trading
Name Desk-Phone E-mail
Vipul Sanghvi Director and Head - Sales +91-22-6704 8062 vipulsanghvi@[Link]
Ashok Kumar Agarwal Sales +91-22-6704 8058 ashokagarwal@[Link]
Jigar Kamdar Sales +91-22-6704 8060 jigarkamdar@[Link]
Nirbhay Kumar Singh Sales +91-22-6704 8061 nirbhaysingh@[Link]
Rahul Khandelwal Sales +91-22-6704 8033 rahul@[Link]
Pawan Sharma Director and Head - Sales Trading +91-22-6704 8067 pawansharma@[Link]
Mukesh Chaturvedi Vice President and Co Head - Sales Trading +91-22-6704 8074 mukeshchaturvedi@[Link]
Vinod Bhuwad Sales Trading +91-22-6704 8051 vinodbhuwad@[Link]
Rashmi Solanki Sales Trading +91-22-6704 8097 rashmisolanki@[Link]
Rahul Thakar Sales Trading - Derivatives +91-22-6704 8073 rahulthakar@[Link]
Vipul Chheda Dealer +91-22-6704 8050 vipulchheda@[Link]
Amit Sawant Dealer +91-22-6704 8054 amitsawant@[Link]
Paras Shah Dealer +91-22-6704 8047 parasshah@[Link]
Suketu Vyas Dealer +91-22-6704 8050 suketuvyas@[Link]
Corporate Access
Audrey Leolyn Mendonca Assistant Vice President +91-22-6704 8088 audreymendonca@[Link]
Production
Yukti Vidyarthi Editor +91-22-6704 8071 yukti@[Link]
Mrunali Pagdhare Production +91-22-6704 8057 mrunalip@[Link]
Vijayendra Achrekar Production +91-22-6704 8089 vijayendraachrekar@[Link]
Operations
Sachin Malusare Vice President +91-22-6704 8055 sachinmalusare@[Link]
Sugandha Rane Assistant Vice President +91-22-6704 8056 sugandha@[Link]
Jignesh Mistry Manager +91-22-6704 8049 jigneshmistry@[Link]
Ravikiran Dasaka Manager +91-22-6704 8622 ravikiran@[Link]
Ravi Agarwal Assistant Manager +91-22-6704 8016 raviagarwal@[Link]

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 153
01 September 2021 Indian Cement Industry

DISCLOSURES/APPENDIX

I. ANALYST CERTIFICATION

I, Sanjeev Kumar Singh, Rahul Jain, Harsh Mittal, hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all of the subject
securities or issuers referred to in this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed in this research report by Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain
independence and objectivity in making any recommendations.

Disclosure of Interest Statement Update

Analyst holding in the stock Birla Cop - Rahul Jain (Yes) | Others Nil
Served as an officer, director or employee No

II. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:

1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.

2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the
month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.

4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or
services from the company(ies) covered in this report in the past twelve months.

5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous
twelve months.

6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research
report.

7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.

8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.

9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:

Sr. Yes /
Particulars
No. No.
1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No
2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No
3 Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report. No
Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the
4 No
previous twelve months.
Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other
5 No
products or services from the company(ies) covered in the research report in the last twelve months.

10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.

STOCK RATINGS

BUY (B): The stock's total return is expected to exceed 15% over the next 12 months.
HOLD (H): The stock's total return is expected to be within -15% to +15% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns of more than 15% over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.

INDUSTRY VIEWS

ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.

III. DISCLAIMER

The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.

This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise
due caution while acting on it. Description of any company(ies) or its/their securities mentioned herein are not complete and this document is not and should not be construed as an
offer or solicitation of an offer to buy or sell any securities or other financial instruments. Past performance is not a guide for future performance, future returns are not guaranteed and
a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information
contained in the report, are subject to change without notice. Prices and availability of financial instruments are also subject to change without notice. This report is intended for
distribution to institutional investors.
This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity that is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject to SSSIL or
its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently sent or has reached any individual in such country, especially USA, the same
may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United States (to U.S. persons), Canada, or
Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. Any unauthorized use, duplication,

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 154
01 September 2021 Indian Cement Industry
redistribution or disclosure of this report including, but not limited to, redistribution by electronic mail, posting of the report on a website or page, and/or providing to a third party a link,
is prohibited by law and will result in prosecution. The information contained in the report is intended solely for the recipient and may not be further distributed by the recipient to any
third party.

SSSIL generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover. Additionally, SSSIL generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of
any companies that they cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that
reflect opinions that are contrary to the opinions expressed herein. Our proprietary trading and investing businesses may make investment decisions that are inconsistent with the
recommendations expressed herein. The views expressed in this research report 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. The
compensation of the analyst who prepared this document is determined exclusively by SSSIL; however, compensation may relate to the revenues of the Systematix Group as a whole, of
which investment banking, sales and trading are a part. Research analysts and sales persons of SSSIL may provide important inputs to its affiliated company(ies).

Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations which could have an adverse effect on their value or price or the income
derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies, effectively assume currency risk. SSSIL, its directors, analysts
or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on the basis of this report
including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.

SSSIL and its affiliates, officers, directors, and employees subject to the information given in the disclosures may: (a) from time to time, have long or short positions in, and buy or sell, the
securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation (financial interest)
or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential material
conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of the analyst and the company may or may not subscribe
to the views expressed therein.

SSSIL, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall SSSIL, any of its affiliates or any third
party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The company accepts no liability whatsoever for the actions of
third parties. The report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of the company, the
company has not reviewed the linked site. Accessing such website or following such link through the report or the website of the company shall be at your own risk and the company
shall have no liability arising out of, or in connection with, any such referenced website.
SSSIL will not be liable for any delay or any other interruption which may occur in presenting the data due to any technical glitch to present the data. In no event shall SSSIL be liable for
any damages, including without limitation, direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by SSSIL
through this presentation.

SSSIL or any of its other group companies or associates will not be responsible for any decisions taken on the basis of this report. Investors are advised to consult their investment
and tax consultants before taking any investment decisions based on this report.

Systematix Shares and Stocks (India) Limited:

Registered and Corporate address: The Capital, A-wing, No. 603 – 606, 6th Floor, Plot No. C-70, G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051
CIN - U65993MH1995PLC268414 | BSE SEBI Reg. No.: INZ000171134 (Member Code: 182) | NSE SEBI Reg. No.: INZ000171134 (Member Code: 11327) | MCX SEBI Reg. No.:
INZ000171134 (Member Code: 56625) | NCDEX SEBI Reg. No.: INZ000171134 (Member Code: 1281) | Depository Participant SEBI Reg. No.: IN-DP-480-2020 (DP Id: 34600) | PMS SEBI
Reg. No.: INP000002692 | Research Analyst SEBI Reg. No.: INH200000840 | Investment Advisor SEBI Reg. No. INA000010414 | AMFI : ARN - 64917

Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 155