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ATS Research Desk Company Name – Ambuja Cements FUNDAMENTAL REPORT

Company Profile Ambuja Cements Ltd is a part of global conglomerate Lafarge Holcim, one of the world’s leader in building materials industry. ACLcommenced its operations in the year 1986 and was formerly known as Gujarat Ambuja Cement Limited.ACL is a leading cement producing company in India.

Investment Rationale CMP as on 30/1/2017 52 Week High/Low Market Cap (Cr) Equity Capital (Cr) Face Value Share Holding Pattern Promoters Holding (%) Non Institutions (%) Grand Total

231.25 281.7/185 45868.4 310.38 2 63.61

 PAN India presence with strong networking.  Lower cost of production owing to lower use of clinker.  Adoption of cost effective techniques to improve product quality.  Synergy benefits owing to two large players acquisition.  Positive Roads ahead for the sector.

36.39 100

Financial Summary – Consolidated Net Sales Operating Profit PAT EPS

FY-12 9730.30 2542.71

FY-13 9174.26 2069.27

FY-14 9978.12 2357.42

FY-15 9461.40 1889.66

1297.06 7.83

1294.57 7.76

1496.36 8.71

807.56 4.63

FY-16

4

Outlook:Ambuja Cement with its wide network of dealers and distributors,along with its acquisition of ACC one of the leading players in cement manufacturing will give a thrust to market tap capabilities. With its new Bulk cement terminals at Mangalore and Kochi Ambuja cement is all set to lay its foot in southern region, ACC presence in southern region and ACC being one of the subsidiary to ACL from august 2016 having strong presence in southern region will help Ambuja to acquire a good market and boost its grow.

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Company Overview: Ambuja cement primary activities include manufacturing and distribution of cement, production, processing and distribution of aggregates, ready mix concrete and asphalt. Currently with the manufacturing capacity of 29.65 million tonnes Ambuja Cements has established itself on PAN India basis and is on rigorous path of adoption of new technology and techniques to deliver good quality products.

6.98

Share Holding Snapshot 2.21 1.49

Share Holding Snapshot 1.92

Promoters

7.14

FII 20.49

Non Institutios 61.62

Mutual funds

Promoters

8.8

18.53

FII Non Institutios 63.61

Other DII

Mutual funds Other DII

Figure 1- Shareholding as on Sep-16Figure 2- Shareholding as on Dec 16 Shareholding PROMOTERS FII NON INSTITUTION Mutual Funds DII TOTAL

Sep16 61.62 20.49 6.98

Dec-16

% change

63.61 18.53 7.14

1.99% -1.96% 0.32%

2.21 1.49 100

1.92 8.8 100

-0.29% 7.31%

Promoters holding in ACL have seen an increment of 1.99% from Sep-16 to Dec-16 which shows a positive outlook for ACL growth,demonetization is a temporary move but overall outlook for the company is very positive and keeping this in mind and value the company holds, promoters stake increment is a positive indication for company’s future growth. ATS Wealth Managers Pvt Ltd.

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Target Segments:-

Tieri/ii/i ii Cities

Public Sector

Private Sector

Customer /Buider

From a capacity of 70,000 tonnes per annum from a single cement unit established in 1986 to a capacity of 29.65 million tonnes reportedin 2016, ACL has emerged as the big player with five integrated cement manufacturing plants and eight grindingunits. Ambuja Cements has technically advanced factories at Gujarat, Maharashtra, Himachal Pradesh, Rajasthan, Chhattisgarh and West Bengal Ambuja Cements Plants - Ambuja Nagar(Gujarat), Bhatapara II (Chhatisgarh), Bhatapara (Chhatisgarh), Dadri(Uttar Pradesh), Darlaghat(Himachal Pradesh), Farakka(West Bengal), Magdalla(Gujarat),Maratha(Maharashtra),Nalagarh(HimachalPradesh),Rabriyawas (Rajasthan) In order to facilitate timely, cost effective and shipments of bulk cement to its customers ACL comes with captive ports with three terminals along the western coastline.ACL has its own fleet of ships and has been the first cement industry to step in this direction. The Company's subsidiaries include M.G.T. Cements Private Limited, Chemical Limes Mundwa Private Limited Kakinada Cements Limited, Dang Cement Industries Private Limited ATS Wealth Managers Pvt Ltd.

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Dirk India Private Limited. ACL product range is as under: PPC (Portland pozolona cement) Ambuja Plus roof Special Alcofine micro materials

In order to produce a high strength PPC, ACL use a precise developed way of using Fly ash.Fly ash is one of the byproduct of power industry and results in cost effectiveness in manufacturing process. Ambuja Plus Roof Special – a special quality PPC cement with advanced SPE technology for concrete that is denser and leak proof, results in strengthened roofs. The Alcofine Micro Materials product line ranges from high strength concrete additives to special applications in tunnels and dams. Greener power generation in its captive plants using multiple bio-mass and co-fired technology has marked ACL a pioneer in technology advancement usage in cement industry. The company also generates 4.6% of its energy from renewable resources. Ambuja Cement has marked its presence:     

First cement manufacturing company using a dry process Being recognized as only water positive cement manufacturer. First to introduce 53 Grade Cement. First Cement Company to get ISO-14064 Certification. Wide network of 48000 dealers and retailers to make available company’s products nationwide.


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Key Ratios

FY-12

FY-13

FY-14

FY-15

Debt-Equity Ratio

0.01

0.00

0.00

0.00

Current Ratio

1.05

1.10

1.09

1.11

Fixed Assets

1.11

0.99

1.01

0.92

Inventory

11.52

10.84

12.33

12.07

Debtors

48.41

46.71

48.91

41.86

Total Asset Turnover Ratio Interest Cover Ratio

1.29

1.13

1.14

1.05

28.85

24.27

28.66

12.44

EBIDTM (%)

25

19.91

20.98

16.42

EBITM (%)

19.85

15.2

16.44

10.61

ROCE (%)

25.66

17.13

18.72

11.11

RONW (%)

16.91

14.16

15.28

7.06

Payout (%)

45.96

46.36

57.38

60.43

Sales/Assets (X)

1.14

0.99

1.01

0.92

ROE(X)

0.17

0.14

0.15

0.07

Price Earning (P/E)

25.66

23.51

26.26

43.91

Turnover Ratio


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Industry Profile: Cement Industry of a country plays a major role in the infrastructure of the country, it being one of the indispensable components of building and construction work. Providing employment to more than a million populations, directly or indirectly India's cement industry constitutes a vital part of the economy. Currently the industry is at its turnaround phase trying to achieve global standards in technology, production and becoming energy efficient. Cement Industry being one of the prime sector attracts huge investments from Indian and foreign investors. India being ranked second in population after China has a larger market to tap in terms of building housing sector and thus gives a drive to cement industry. Top Cement Producer FY-16 million tonnes 4000 2000 0 China

India

USA

Brazil

Russia

Top Cement Producer FY-16

Indian Cement Industry: Cement Industry

Large Cement Plants

Mini and White Cement Plants

No. Of plants: 209

No Of plants: 365

Installed capacity: 378.3 mtpa

Installed capacity: 11.7 mtpa

Cement production: 246.34 mt

Cement production: 33.66 mt


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Key Drivers to Cement Industry:    

Housing growth Infrastructure Growth Commercial real-estate Growth Government Initiatives towards New Schemes

Housing sector being one of the key drivers for cement industry accounts for almost 67% of total consumption in India, second major consumer include infrastructure which holds 13% and rest by commercial and industrial production each holding approx 11% and 9% hold in cement usage.

Percentage contributor to Cement Industry 11%

9%

13% 67%

Housing

Infrastructure

Commerical Production

Industrial Production

With large potential and technological developments in cement industry, engaging in capacity utilizations process implementation and companies coming up with varied product ranges, cement industry has a large potential to grow in coming time. Government initiatives have provided a thrust to the industry, one such movement is plan for the development of 100 smart cities. Government “Make in India” concept and emphasis on building home for each has given a boost to the sector. Infrastructure plays a major role in any country development, and government rigorous attempts to attract more and more investments in the country to boost the development have opened wide room for cement industry.

As per the reports forecastedby the industry association Indian cement industry is expected to show a CAGR of approx 8%-9% by 2020.


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Growth in cement production in India (Miillion Metric Tonnes) 500 400 300 200 100 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Statics above shows cement requirement growth from FY08-FY16, with a forecast for FY17 Cement production has increased at a CAGR of 6.44% from FY 08 toFY16 to approximately 270 MT in FY 16, with government initiatives and FDI in cement sector and growing needs for housing production is expected to increase to 407 MT in 2017. Government push for large infrastructure projects is expected to boost demand for cement by approximately 45 MT in next three to four years. Per capital consumption of cement In India Stands at around 190 kg, which is much lower than world’s average and as compared to China, the largest shareholder of cement manufacturer, and low per capital consumption indicates an increased scope for growth in the sector in coming time.

Indian Cement Industry Demographics: •Gujrat

West

East

South

North

•Tamil Nadu, A.P, • Karnataka


•west bengal, orissa, jharkh and, chattisg arh

•Rajasthan, Punjab, NCR, Harayana

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Key Manufacturers of Cement in India: ACC Limited. Ambuja Cements Limited. Jaiprakash Associates. Shree Cement. Ultratech Cement Limited

Cost Elements: The major cost Elements that are associated with the production of cement are as under:     

Raw Material Cost Power Coal Transportation cost Other Expenses

Operating Cost % 6% 18%

40%

20% 16%

Raw Materials

Power

coal

Transportation

Other Expenses

Raw Material: Limestone, gypsum, fly ash, clay being the major raw materials used in the manufacturing of cement accounts for almost 40% of operating cost. Plants are located near limestone quarries as limestone cannot transport, and owing to this clinker plants are also associated near limestone deposits. Power: cement industries are power intensive and needs almost 120kwh of power to profuse one tonne of cement. Establishment of captive power plants is making it possible to use power at 90kwh. Coal: coal constitutes around 20% of operating cost, coal is the needed to burn the raw materials used in cement manufacturing. Transportation: industry being highly freight intensive constitutes around 18% of operating cost. ATS Wealth Managers Pvt Ltd.

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Investment Rationale: Pan India Presence with strong networking: Ambuja cements having a network of around 48000 dealers and retailers make a strong presence in market. Dealers and retailers have helped the company to cater the markets including rural and semi-urban markets. Wide network of sale offices and warehouses with well trained experienced and personnel have helped ACL to tap a large market share. ACL having their presence in strategically locations in eastern, western and northern regions along with brand equity and efficient channel management has helped the company in withstanding the tough competition by its competitors.ACL with its own ports, captive ships and bulk cement terminals have made a sustainable market position among the industry players. Recently Mangalore bulk cement terminal with its commercial operations helped ACL is marking its footprint in southern region.

Lower cost of production owing to lower use of clinker Ambuja Cements following a policy of producing a high quality cement has constantly being adopting new and efficient technology to manufacture the product.ACL has reduced the usage of clinker and adopted using Fly ash as the raw material, Fly ash is being seen as replacement of Portland cement used in making concrete. Fly ash being stronger and durable is seen as the replacement market forPortland cement .Fly ash is less expensive as compared to Portland cement and thus makes a cost effective substitute and results in lower cost of production. Fly ash besides being cost effective is also environmental friendly and easier to use in cold weather, it lowers in lower emissions of carbon and protects environment. Gypsum accounting for almost 2%-3% of cost of sales and Rajasthan accounts for 99% production of gypsum in the country, ACL presence in Rajasthan has given an advantage for the raw material usage at low cost and hence by reducing cost of production. Adoption of cost effective techniques to improve product quality: Ambuja Cement is known for delivering high quality tailor made products suitable for Indian climatic conditions as well as in term of its sustainability, to stand on this term company rigorously infuses new technology in its production cycle. One such innovation made was CFL (concrete future laboratory) which is a one stop solution for all engineers, architects as well as construction materials. Greener power generation in its captive plants using multiple bio-mass and co-fired technology has marked ACL a pioneer in technology advancement usage one of the cost effective technique used by ACL is usage of blast furnance slag and fly ash, usage of energy is verylow, and the resultant product is Blended cement being manufacture by ACL. ATS Wealth Managers Pvt Ltd.

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Synergy benefits owing to two large players acquisition Lafarge Holcim stake in ACC was about 50.05% which constitutes 9.39 Cr worth of shares and assets of HIPL, August 2016 was a milestone in the story of ACL, as under the scheme of amalgamation ACL paid HIPL to acquire the stake in ACC, and with this ACC became one of the subsidiaries of ACL. ACC being one of the pioneers in manufacturing of cement and ready mix concrete inIndia. Synergy Benefits: Opportunity to tap big market share ACC has the largest number of manufacturing units, ACC has approx 17 modern cement factories and 50 ready mix concrete plants in India which is the another contributing factor for ACL to reach wide areas across the country. Wide network Area for making sales: With a wide network of around 9000 dealers and wide distribution of sales offices ACL acquisition of ACC will give a boost to ACL to tap other market areas where ACL reach is still lacking. ACL opened its one MT bulk cement capacity terminal in Mangalore which is aiding a great support to ACL in establishing it in southern region, Southern region being tapped by other market players could give a competition to ACL , keeping this in formulating strategies to tap this untapped market by ACL, ACL stepped ahead and this synergy of ACC and ACL will help ACL To tap a major southern region share, ACC having 4 cement plants in Karnataka ,1 in Madurai and 1 in Andhra Pradesh will give a benefit to ACL to emerge a good player in southern region also and contribute to increased revenue.

Positive roads ahead for the sector: With the government declaration in the Budget 2017 for its emphasis on rural areas development and heavy spending on infrastructure, a green signal for the sector is clear Some of the key points:    

Affordable housing National highways construction Development of 100 smart cities Refinancing of housing loans


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Affordable Housing In budget 2017 presentation Government came up with its projections of making around 1 crore households out of poverty by 2019 , this is a step towards development of vulnerable section , and this move will be taken by providingaffordable housing to the segment. In budget 2017 government gave a green signal to the movement and this movement will make true the line “Housing forall”. Providing affordable housing to a mass is a long term vision and cement industry plays a key role in development of housing. This movement will be a leading factor for the cement industry sector, ACL being pioneer in this sector gain from this move. National Highway construction: In budget 2017 government sanctioned 6400 Cr for the development of National highways across the country, highway construction is dependent on cement companies supplies, Cement being major building factor for the construction of highways, and government incremental spending on building National Highways will give a thrust to ACL in contributing to nation as well as improving its market share. Development of Smart Cities: Government move under make in India concept to develop 100 smart cities across the country demands for a high influx of cement, which not only will help in housing but road developments too. Roads being constructed with RMC these days, ACL and ACC being pioneer in ready mix concrete manufacturing will lay a road of future growth. Refinancing of housing loan Budget 2017 came up with the move to refinance housing loans, which will help real estate sector, and which in turn will help cement sector, as cement contributes a major share in housing and refinancing of home loans will help improve real estate which has seen a downturn from sep 2016 to return to growth phase and this will lead to cement industries growth. Eastern States of India are going to witness a major infrastructure development and could contribute to the growth of cement companies operating in these regions.ACL having its strong presence in this zone will be able to capture and contribute to the infrastructural move by the government, In coming time India could become major exporter of cement and companies near to ports will be able to grab this opportunity, ACL having its own fleet of ships along with its plants in Gujarat, Vishakhapatnam now Koch and Mangalore will set a growth for ACL.


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INCOME : Sales Turnover

FY-12 11061.45

FY-13 10422.87

FY-14 11261.26

FY-15 10784.53

Excise Duty Net sales

1266.42 9795.03

1217.24 9205.63

1261.59 9999.67

1303.19 9481.34

Other income Stock adjustment

348.52 200.83

400.03 -118.29

424.33 -16.22

353.22 -25.40

Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses

10344.38

9487.37

10407.78

9809.16

681.38 2333.96 487.94 1460.26

698.27 2066.31 508.47 1421.41

840.49 2268.64 586.33 924.67

805.64 2057.51 594.05 847.07

Selling and Administration Expenses Miscellaneous expenses Less: Pre-operative Expenses Capitalized Total Expenditure Operating Profit Interest Gross Profit Depreciation Minority Interest (before tax) Profit Before Tax Tax Fringe Benefit Tax Deferred Tax Net Profit Minority Interest (after tax) Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso.Co. Extraordinary Items Adjusted Net Profit Equity Dividend (%) Dividend Per Share(Rs)

2184.13

2251.90

2974.68

3116.35

653.89 0

482.28 0

460.37 0

492.86 0

7801.56 2542.82 78.46 2464.36 567.86 0 1895.68 700.18 0 -96.32 1291.82 -1.39 0

7428.64 2058.73 66.75 1991.98 493.67 0 1498.31 189.25 0 30.62 1278.44 -0.13 0

8055.18 2352.60 65.55 2287.05 513.03 0 1774.02 262.37 0 24.14 1486.51 0.01 0

7913.68 1895.48 92.47 1803.01 629.76 0 1173.25 333.89 0 31.48 807.88 0 0

1293.21

1278.57

1486.5

807.88

-129.42 1422.63 180 3.6

87.52 1191.05 180 3.6

63.63 1422.87 220 5

87.53 720.35 140 2.8


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Sep-15

Sep-16

% change

7012.49 69.69 7082.18

6963.74 73.05 7036.79

-0.7%

604.27 41.9 (108.90)

599.11 (110.63)

449.66 1605.06 1889.66 1434.37 5878.31 1203.87 461.53 742.34 73.66 274.89 943.57 245.96 697.61 17% 4.5

445.11 1416.68 1894.84 1438.07 5683.18 1353.86 693.87 659.74 57.85 535.15 1137.04 342.83 794.21 19.44% 4.0

Income from operations A.Net sales B.Other Income Total Income Expenses Cost of materials consumed Purchase of stock in trade Change in inventories of finishes goods, work in process and stock in trade Employee Benefit Expenses Power &Fuel Manufacturing expenses Other Expenses Total Expenses EBITDA Depreciation & Amortization EBIT INTEREST OTHER INCOME EBT TAX PAT Operating Profit Margin EPS

12.45%

-21.46%

13.85% 2.44%

Ambuja Cements Standalone results on Y-O-Y basis shows about 12.465 of increment in EBITDA, decrease in price of raw materials is one of the major factors in this period contributing to high EBITDA. Interest on Y-O Y basis have decreased by 21.46%, ACL is a zero Debt company, and having no financial leverage is another good contributor to the company’s strong position in the market.Net profit showed an increase of 13.85% on y-o y basis and approx 79.8 % on y-o y quarter basis for September month. Net Sales Y-O-Y growth in nine month ended in sept-16 is -0.7% as compared to -6.89% in sept-15, so on broader picture improvements are seen.


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FY-12

FY-13

FY-14

FY-15

Share Capital Reserves Total Total Shareholders’ Funds Minority Interest Secured Loans Unsecured Loans Total Debt Other Liabilities Total Liabilities APPLICATION OF FUNDS :

308.44 8488.97 8797.41 0.84 11.72 48.64 60.36 26.75 8885.36

309.17 9152.72 9461.89 0.71 13.66 34.62 48.28 43.11 9553.99

309.95 9760.02 10069.97 0.72 10.74 23.29 34.03 42.53 10147.25

310.38 9961.02 10271.40 0.72 10.62 24.38 35 42.16 10349.28

Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress

10285.36 4334.59

10928.99 4782.24

11533.61 5223.98

12119.14 5948.97

5950.77 523.68

6146.75 697.50

6309.63 692.14

6170.17 416.42

Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less: Current Liabilities And Provision Current Liabilities Provisions Total Current Liabilities

1580.93

1713.54

2096.6

2148.83

986.93 220.54 2260.17 282.82 3750.46

936.41 235.13 2344.98 326.87 3843.39

889.97 231.65 2462.28 351.81 3935.71

897.96 290.46 2853.32 360.22 4401.76

1602.98 1308.99 2911.97

1875 963.48 2838.48

1965.92 1176.28 3142.2

2133.57 1084.51 3218.08

Net Current Assets Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Other Assets Total Assets

838.49 108.97 732.86 -547.49 538.98 8885.36

1004.91 130.26 723.47 -563.88 555.17 9553.99

793.51 134.45 694.52 -589.02 844.39 10147.25

1183.68 167.26 656.46 -565.50 995.78 10349.28

SOURCES OF FUNDS :


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Stock Performance Chart:

Conclusion and Recommendation: Ambuja Cement overall outlook for medium to long term is positive and with positive budget for infrastructure sector, and government vision for housing for all we recommend a Buy for the stock..

Research By: Megha Mohnot Equity Research Analyst ATS Wealth Managers Pvt. Ltd Email: [email protected]

Disclaimer: This Report is only for the information of our customers. Recommendations, opinions or suggestions are given with the understanding that readers acting on this information assume all risks involved. The information provided her is not be constructed as an offer to buy or sell securities of any kind. ATS and/or its group companies do not as assume any responsibility or liability resulting from the use of such information. ATS Wealth Managers Pvt Ltd.

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