Cement JPM

Asia Pacific Equity Research
16 April 2009
India Cement: FY10E -- A likely

tale of 'two' halves
Earnings outlook improves on lower costs and resilient
pricing
• Recent demand momentum unlikely to sustain…: We do not expect the India

recent demand momentum seen in cement (since Nov-08) to sustain as we Cement
believe a large part of this has come from pre-election spending on public AC
Pinakin Parekh, CFA
infrastructure. We maintain our FY10 demand growth estimate at 5.5%. (91-22) 6639 3018
Regionally, we expect demand momentum in south India to slow in FY10. pinakin.m.parekh@jpmchase.com
• …But earnings could benefit from reduced costs, lower price declines: J.P. Morgan India Private Limited
We increase our earnings estimates and PTs across our coverage universe
over FY09-11, driven by: (a) lower coal costs; and (b) lower price declines Cement Index
in FY10E (we now assume a 5% price decline compared with 10% earlier).
Importantly, we believe the rise in cement prices of 2-4% in the Mar-09
70.00
quarter has meant that cement price declines would: (a) happen from a
higher level; and (b) more likely in H2Y10E. We see relatively strong H1 20.00
earnings compared with H2 in CY09/FY10. Jan-08 May -08 Sep-08 Jan-09
• Supply discipline more important than capacity additions: We lower our Cement Index BSE Sensex
FY09-11E capacity addition target to 73MT vs. 90MT earlier, (FY09
capacity addition stood at 23MT against our expectations of 40MT). We
continue to believe that a much more consolidated cement industry Source: Bloomberg. Priced as of 16 April 2009.
combined with healthy balance sheets across key players means we are
going to see more ‘disciplined supply’ over the next two years.
• We remain OW on Grasim and UltraTech, and would be buyers of
cement stocks at declines: Given the strong performance over the past few
months, we see a possibility of profit-booking on ‘bad news’ (which could
be waning cement dispatch momentum, and potential rollback of excise duty
cuts) or sector rotation by investors, given that the cement sector rally started
much earlier than the current equity rally. We would be buyers of cement
stocks at declines, given our expectation of relatively healthy earnings.
We remain OW on Grasim and UltraTech given: (a) relatively
attractive valuations; (b) strong free cash flow generation; and (c) the
option value of strong volume growth in the event that demand
surprises on the upside.
• Key risks remain sharper-than-expected demand and cement price declines
and/or regulatory pressure.
EV/EBITDA (x) for large cement companies
30
25
20
15
10
5
-
Apr-95 Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09
ACC Ambuja Ultratech Grasim
Source: Company reports, Bloomberg and J.P. Morgan estimates. Note: Priced as of 16 April, 2009.
See page 56 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Pinakin Parekh, CFA Asia Pacific Equity Research
(91-22) 6639 3018 16 April 2009
pinakin.m.parekh@jpmchase.com
Table of Contents
Revising estimates upwards driven by higher pricing, lower
costs ..........................................................................................3
Top picks- Remain OW on Grasim and Ultratech on
valuations..................................................................................5
Demand momentum unlikely to sustain, but 5-6% growth
achievable in FY10E .................................................................7
Which states/regions are driving cement demand........................................................9
Demand outlook for FY10-11E across regions, South India growth to moderate .....10
Supply discipline more important that capacity additions .10
We remain confident of disciplined supply in major regions ....................................11
Costs reduction across fuel, freight .....................................12
While INR has depreciated, sharp decline in import coal prices ...............................12
However longer term coal still remains a challenge for industry...............................13
Cement prices- Supply discipline key to pricing .................14
Recent increases sharply higher than our estimates ...................................................14
Price cuts likely to start in H2FY10E…. ...................................................................16
….however remain convinced of greater ' supply discipline'.....................................16
Industry leverage remains low ...................................................................................17
Stronger earnings outlook means M&A likely to be delayed
.................................................................................................17
Stock price corrections should be buying opportunities ...18
Companies
ACC Limited..............................................................................................................22
Ambuja Cements Limited ..........................................................................................30
Grasim Industries Ltd ................................................................................................38
UltraTech Cement Ltd ...............................................................................................47
The author acknowledges the contribution of Neha Manpuria of J.P. Morgan

Services India Ltd., Mumbai, to this report
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(91-22) 6639 3018 16 April 2009
We raise our estimates driven by higher

pricing, lower costs
We upgrade our FY10 earnings estimates across our coverage universe by 22-40%.
We are positively surprised by the strong demand momentum seen recently in
cement, and more importantly by the aggressive price increases by the industry in
most parts of the country. Cement capacity additions are delayed and thus cement
We increase our earnings
prices are expected to remain relatively strong at least till the start of the rainy season
estimates across over coverage
universe driven by: (a) resilient (July). Cost declines across coal, and freight (as fuel prices have come down) should
pricing; and (b) lower costs. We also be a positive for the industry in FY10/CY09E. While sector performance has
maintain our Overweight been impressive (large cement stocks are up between 50% and 100% from their
recommendations on UltraTech Oct/Nov-08 lows), we believe valuations remain undemanding. A summary of our
and Grasim
views across key industry variables is as follows:
While we do not see the current • Demand momentum unlikely to sustain, FY10E demand seen at 5.5%: We
demand momentum of 9%+ are not confident about the recent 9%+ demand growth seen since Nov-08. We
continuing in FY10, we are maintain our FY10 total cement dispatch growth estimate of 5.5% (down from
confident of 5-6% cement
demand growth in FY10. We
8.4% dispatch growth seen in FY08) and see a recovery in FY11 with a dispatch
expect the benefits of a growth of 8.5%. Higher-than-expected cement demand growth remains one
consolidated industry in the of the key upside risks to our earnings estimates (the other being cement
form of more disciplined supply prices).
• Supply discipline more important than capacity additions: Cement capacity
additions have been delayed and FY09 capacity addition estimates of around
23MT are sharply lower than our estimates of 40MT. Our FY10 capacity addition
estimate stands at 35MT, with around half of it back-ended towards H2FY10.
North and West India remain the most consolidated regions, while the southern
region is the least consolidated. We believe supply discipline (or the lack of it)
would be a key determinant of cement prices.
We expect FY10 earnings to • Costs decline ahead of estimates, full benefits to flow in H1FY10E: Even after
benefit from the twin tailwinds adjustments for rupee depreciation, imported coal costs have declined sharply (a
of: (a) lower costs in coal; and
(b) stronger-than-expected
net decline of 40% from the peak levels). With fuel prices also declining, which
cement prices should help lower freight costs gradually over the next 12 months, we believe
lower costs across two key components should alone raise EBITDA margins
by 150-250bp. However, longer-term coal availability remains a concern,
given the steadily reducing linkage in coal supplies, in our view.
• Cement prices should decline, but more skewed towards H2; and declines
should happen from a higher level than our earlier assumption: We lower our
cement price decline estimate to 5% for FY10 compared with our earlier
assumption of 10%. We maintain our FY11 price decline assumption of 5%. We
believe cement price declines now would start from a higher level after the 2-
4% increase in cement prices across many geographies in the Mar-09
quarter. A combination of delayed capacities and our expectation of a
relatively strong supply discipline in key regions lead us to increase our
FY10 cement pricing assumption to a 5% decline from 10% earlier.
• We increase our earnings estimates due to lower price declines and higher-
than-estimated cost savings: We increase our earnings estimates sharply across
3
(91-22) 6639 3018 16 April 2009
our coverage universe mainly on account of: (a) price increases in the Mar-09
quarter; and (b) a lower price decline estimate of 5% for FY10 compared with our
earlier assumption of 10%. We believe supply discipline, or the lack of it
would be a key determinant of prices. We estimate H1FY10 earnings to be
relatively stronger compared with H2FY10.
• Stock picks: Grasim and UltraTech remain our top picks: While we increase
our earnings estimates and price targets across the board, our top picks remain
UltraTech and Grasim on relative valuations.
• Even though the industry will witness surplus capacity over the next two
years, strong operating earnings, low financial leverage, and domestic
exposure make the sector relatively immune to a global crisis, in our view:
One of the key attractions of the Indian cement sector remains the domestic
exposure of the industry. With the Indian economy expected to grow between 5%
and 6% in FY10 and even assuming a 1x cement/GDP multiplier against the
historical multiplier of 1.2-1.4x seen in recent years, we expect cement demand to
grow at least by 5-6% in FY10, even as demand from the real estate sector
remains depressed. With healthy balance sheets across key companies, and a
highly consolidated industry (top 4 companies to account for 45-50%) of cement
capacity, we continue to see strong operating cash flows, and with valuations
below historical averages, we would be buyers of cement stocks on declines.
Given the strong performance over the past few months, we see the
possibilities of profit-booking on ‘bad news’ (which could be waning cement
dispatch momentum, and the potential rollback of excise duty cuts) or sector
rotation by investors, given that the cement sector rally started much earlier
than the current equity rally. We would be buyers of cement stocks at
declines, given our expectation of relatively healthy earnings and cash flows.
Table 1: Change in J.P. Morgan estimates
Rs ACC Ambuja Grasim UltraTech
2008/FY09E Old EPS - - 229.2 66.6
New EPS - - 231.9 72.1
% change - - 1% 8%
2009/FY10E Old EPS 48.5 7.4 148.9 47.1
New EPS 59.0 7.1 193.2 65.5
% change 22% -4% 30% 39%
2010/FY11E Old EPS 47.0 6.9 181.0 48.7
New EPS 47.6 6.1 185.9 59.9
% change 1% -12% 3% 23%
Source: J.P. Morgan estimates.
Table 2: J.P. Morgan versus consensus estimates

Rs ACC Ambuja Grasim UltraTech
2008/FY09E JPM - - 231.9 72.1
Consensus - - 233.9 74.5
% diff 1% 3%
2009/FY10E JPM 59.0 7.1 193.2 65.5
Consensus 50.2 6.4 189.0 64.3
% diff -15% -10% -2% -2%
2010/FY11E JPM 47.6 6.1 185.9 59.9
Consensus 38.1 5.5 172.8 46.3
-20% -10% -7% -23%
Source: Bloomberg and J.P. Morgan estimates.
4
(91-22) 6639 3018 16 April 2009
Figure 1: EBITDA/MT for large cement companies

Rs/MT
1,300 145%
1,079
We expect a more gradual 116% 120%
1,100
decline in EBITDA/MT against 930 887
900 95%
our earlier assumptions 920 683 70%
700
432 426 45%
500 348 372 355
292 311 303 -14% 20%
24% -14% 17% 20% -5% -23%
300 12% 17% -5%
6% -19%
100 -30%
E
99
00
01
02
03
04
05
06
07
08
09
10
11
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Source: Company reports and J.P. Morgan estimates.
Top picks: We remain OW on Grasim and

UltraTech on valuations
We increase our price targets and earnings estimates across our coverage universe.
We remain Overweight on Grasim and UltraTech as relative valuations across
We would be buyers of cement earnings (EV/EBITDA) and asset-based ($EV/MT) methodologies are lower
stocks on declines for the than ACC and Ambuja. Additionally, with the option of ramping up volumes
following reasons:
sharply, if demand is higher than estimates, strong free cash flows (as both
1) The domestic exposure of companies have more or less completed their capex programs compared to ACC
the industry makes it and Ambuja which are in the midst of their capex programs), are positives for
relatively insulated from the
Grasim and UltraTech. With cotton prices continuing to move up, we also see the
global crisis in terms of
demand VSF business gaining traction in terms of pricing strength some time in H2FY10
benefiting Grasim, while UltraTech should benefit from the increase in captive
2) Relatively strong earnings
power generation. Our Mar-10 price target of Rs670 for UltraTech implies 24%
over FY10-11E as cement
price declines are likely to upside from the current price levels, while our Mar-10 price target of Rs1,850 for
be lower, and costs Grasim implies 15% upside from the current levels. While both Ambuja and ACC
declines are ahead of are debt-free and should be able to fund their large capex program via internal
estimates accruals, we expect ACC’s operating margin to lag peers and Ambuja’s margin
3) Strong operating cash flows expansion over the next two quarters (when the full benefits of strong prices and
as EBITDA/MT higher than lower costs) should be restrained given third-party clinker purchases. In the longer
previous cycle lows term, we believe lack of clarity on Holcim’s strategy for further growth in India
4) Valuations remains below and the possibility of an ACC-Ambuja merger (unlikely in the near-term, in our
historical averages view) are key negatives.
5
(91-22) 6639 3018 16 April 2009
Table 3: Cement valuation matrix

Rs, US$ and %
Company Current price Rating Year EPS EPS P/E EV/ EV/
(Rs.) growth EBITDA Tonne
(Rs) (% Y/Y) (x) (x) (US$)
Grasim 1,603 OW FY09E 232 (13) 6.9 5.5 82
FY10E 193 (17) 8.3 5.2 67
FY11E 186 (4) 8.6 5.0 52
ACC 614 N CY09E 59 (5) 10.4 6.3 90

CY10E 48 (19) 12.9 7.6 80
Ambuja 81 N CY09E 7 (1) 11.3 6.6 102

CY10E 6 (14) 13.1 7.3 91
UltraTech 541 OW FY09E 72 (11) 7.5 5.1 79

FY10E 65 (9) 8.3 4.7 69
FY11E 60 (8) 9.0 4.6 60
India Cement 120 NR FY09E 20 - 6.2 4.0 79

FY10E 18 (9) 6.7 4.0 73
FY11E 13 (27) 9.2 4.7 56
Source: Bloomberg estimates for NR stocks and J.P. Morgan estimates. Note: Priced as of 16 April, 2009.
Figure 2: EV/EBITDA for large cement companies

x
30
25
20
15
10
5
-
Figure 3: EV/Tonne for large cement companies

$/MT
300
260
220
180
140
100
60
20
ACC Ambuja Ultratech India Cements
6
(91-22) 6639 3018 16 April 2009
Table 4: Sensitivity analysis based on the impact on CY09/FY10 estimates from the 10% decline
in cement prices
ACC Ambuja UltraTech Grasim
CY09 CY09 FY10 FY10
EPS -30% -26% -23% -15%
Net profit -30% -26% -23% -15%
EBITDA -27% -24% -18% -10%
EBITDA -5% -5% -4% -2%
EBITDA/MT -27% -24% -18% -23%
Net Debt/Equity -5% -4% -4% -2%
Figure 4: EBITDA/MT and FCF for large cement companies

ACC Ambuja
15,000 1,000 10,000 1,400
1,200
10,000 800
5,000 1,000
5,000 600 800
0
0 400 600
400
05
06
07
08
02
03
04
05
E
-5,000
09
10
CY
CY
CY
CY
FY
FY
FY
FY
-5,000 200
CY
CY
05
06
07
08
02
03
04
05
200
09
10
CY
CY
CY
CY
FY
FY
FY
FY
CY
CY
-10,000 0 -10,000 0
FCF Rs Mn (LHS) EBITDA/MT (RHS) FCF Rs Mn (LHS) EBITDA/MT (RHS)
Grasim UltraTech
40,000 1,400 15,000 1,200
30,000 1,200 1,000
20,000 1,000 10,000
800
10,000 800
5,000 600
0 600
400
-10,000 400
0
E
E
02
03
04
05
06
07
08
09
10
11
200
FY
FY
FY
FY
FY
FY
FY
-20,000 200
FY
FY
FY
E
02
03
04
05
06
07
08
-30,000 0 -5,000 0
09
FY
FY
FY
FY
FY
FY
FY
FY
FCF Rs Mn (LHS) EBITDA/MT (RHS) FCF Rs Mn (LHS) EBITDA/MT (RHS)
Demand momentum unlikely to sustain,

but 5-6% growth achievable in FY10E
Domestic cement demand has surprised on the upside since Nov-08, even as
industrial production (IP) remained in the doldrums and demand from a key segment
such as the real estate industry has remained depressed. Discussions with companies,
cement dealers and other channel checks indicate two key sources for the sharp
demand growth seen over the past five-six months. Key factors which drive demand
7
(91-22) 6639 3018 16 April 2009
growth are: (a) pre-election spending across public infrastructure projects; and (b)
strong demand from rural and semi-urban areas. Demand visibility post monsoons
(rainy season in Northern India in July-Sept) remains low. We are not very confident
about the industry sustaining the recent 8-10% demand momentum seen over the past
few months, and hence we continue to forecast a domestic cement demand growth of
5.5% in FY10, before recovering in FY11E.
Figure 5: Cement demand has improved despite weak indicators from other sectors
%
25
20
15
10
5
0
-5
-10
-15
Jun-00 Mar-01 Dec-01 Sep-02 Jun-03 Mar-04 Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08
Real GDP Cement Agriculture Manufacturing Construction
Source: RBI and J.P. Morgan estimates.
Figure 6: Cement demand and real GDP growth (%) Figure 7: Cement demand growth has been strong despite weak IP in
recent months
20.0 11
15.0 30.0 20
9
10.0 20.0 15
7
5.0 10.0 10
5
-
- 5
(5.0) 3
(10.0) 0
(10.0) 1
Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 (20.0) -5
Cement Real GDP Jan-00 Sep-01 May-03 Jan-05 Sep-06 May-08
% cement change IP
Figure 8: Cement demand growth as multiplier of GDP growth

%
3.0 2.7 2.7

2.5 2.0
2.0 1.8
1.6
1.5 1.1 1.2 1.1 1.1 0.9 1.3 1.1 1.2
0.8 0.9
1.0 0.8 0.8
0.4
0.5
0.0
-
E
E
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
Source: RBI, CMC and J.P. Morgan estimates.
8
(91-22) 6639 3018 16 April 2009
Figure 9: Indian cement dispatch growth (FY04-FY11E)

%
12.0 11.4
11.0
10.0 9.0
8.5 8.5 8.5
9.0 8.2
8.0
7.0 5.9
6.0
5.0
4.0
FY05 FY06 FY07 FY08 FY09 FY10E FY11E
Source: CMA and J.P. Morgan estimates.
Which states/regions are driving cement demand?

As discussed previously, recent strength in cement demand was driven by: (a) rural
and semi-urban areas; and (b) pre-election public spending. We believe it is more
important to focus on cement consumption data than cement dispatches, to gather a
sense of real underlying demand strength/weakness.
As the chart below illustrates, more than 50% of the incremental demand seen since
Nov-08 has come from four-five states: Uttar Pradesh (Northern India), Andhra
Pradesh (Southern India), Madhya Pradesh, Chattisgarh, and Assam, which in FY08
accounted for less than 30% of India’s cement consumption. Northern India demand
has been relatively strong.
Figure 10: Key contributors to the recent cement demand growth (Nov Figure 11: Cement consumption share (%) by key states in India (YTD
08–Feb-09) FY09)
6.7% Raj. 5.9% Raj. 6.2%
Kar. 6.5% Bihar+Jhkd
Delhi 7.6% Orissa 5.9%
Guj. 6.9% 4.6%
TN 5.3%
MP+Chtg
Assam 8.1% Others 26.1%
7.0%
MP+Chtg Others 16.2%

10.1%
TN 9.0%
AP 10.1% Mah. 12.3%

AP 16.2% UP 18.0%
UP 11.3%
Source: CMA and J.P. Morgan estimates. Source: CMA and J.P. Morgan estimates.
9
(91-22) 6639 3018 16 April 2009
Demand outlook for FY10-11E across regions; south India

growth to moderate
Southern India cement consumption has increased at an estimated CAGR of 12%
over FY04-08 and has accounted for 40% of India’s incremental cement
consumption. However, we expect growth to moderate in southern India in FY10E.
With south India being the least consolidated region and large capacity additions
Table 5: Cement demand CAGR in expected over the next 12 months, we expect cement prices to remain under pressure.
top 15 states
4-Y CAGR Figure 12: Region-wise cement demand growth
Chandigarh 21.8% %
Haryana 16.9%
AP 16.5% 11.0 10.4
Pondicherry 14.9% 10.0 9.0 9.0
MP 12.9% 9.0 8.0 8.2
TN 12.3% 7.5 7.5
8.0 6.8
Andaman & Nicobar 12.0%
7.0
Gujarat 11.9% 5.5 5.7
Rajasthan 11.8% 6.0 5.0 5.0
J&K 11.6% 5.0
Karnataka 9.5% 4.0
Maharashtra 8.8%
North India South India East India West India
Bihar 8.8%
Orissa 8.7% FY10E FY11E FY04-08 CAGR
HP 8.1%
Supply discipline more important than

capacity additions
We revise our capacity addition estimate schedule and lower our FY09-11E
capacity additions estimate to 73MT from the earlier 90MT. More importantly,
we believe delays in capacity additions coupled with the ramp-up time required
for achieving full capacity utilizations means the full impact of large supply
additions would only be felt in 2HFY10E, compared to 1HFY10E.
We expect large greenfield projects, which have not received land

acquisition/environmental clearances yet, to be deferred (even Ambuja has
announced the deferment of certain cement grinding projects). We believe southern
India would potentially see the largest region-wise cement capacity addition. Our
region-wise capacity addition and demand outlook is shown below.
10
(91-22) 6639 3018 16 April 2009
Table 6: India cement demand and capacity outlook

MT FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Available capacity for the year 150 156 165 173 205 230 251
Year-end capacity 152 160 166 189 212 247 262
Capacity addition on available basis 6.2 5.7 8.9 8.5 31.6 25.0 21.5
Capacity addition on end basis 7.1 8.1 5.9 23.2 22.9 35.5 15.0
Domestic demand 121 135 148 163 177.0 187 203
Demand growth (%) 6.7 11.5 10.0 10.1 8.4 5.9 8.5
Exports 10.1 9.2 8.9 5.9 6.0 5.6 6.0
Growth (%) 12.2 -8.9 -3.3 -33.7 1.7 -6.7 7.1
Total demand 131.0 144.1 157.2 169.2 183.0 193.0 209.3
Growth (%) 7.1 9.9 9.1 7.6 8.1 5.5 8.5
Cap util - Available capacity (%) 87 93 95 98 89 84 83
Table 7: Region-wise capacity and demand outlook

MT FY05 FY06 FY07 FY08 FY09E FY10E FY11E
North India
Total capacity available 34.1 36.0 39.5 43.2 56.2 62.2 67.2
Year-end capacity 35.0 38.0 39.9 50.2 56.6 68.2 71.2
Consumption demand 38.4 41.3 45.7 49.8 54.0 57.0 61.6
Demand growth (%) 5.6 7.5 10.8 8.9 8.5 5.5 8.0
Gap with total capacity 4.3 5.2 6.2 6.6 -2.2 -5.2 -5.6
South India
Demand growth (%) -2.8 25.1 13.8 11.8 9.5 7.5 9.0
Gap with total capacity -16.2 -11.4 -9.7 -7.6 -13.7 -21.7 -24.5
East India
Demand growth (%) 14.0 7.0 4.3 2.4 12.5 5.0 7.5
Gap with total capacity 6.1 7.0 6.4 5.7 5.7 4.8 2.7
West India
Demand growth (%) 14.1 6.2 8.1 13.6 5.0 5.0 9.0
Gap with total capacity -23.3 -21.6 -19.2 -14.6 -17.6 -20.3 -20.5
We are confident of disciplined supply in major regions

While investors have been focused on large capacity additions and potential over-
supply situation, we believe the Indian cement industry is in a fundamentally
different (and better) situation than late 90s, and the early part of this decade. A
much more consolidated industry, combined with lack of high financial leverage
across among larger participants, removes the stress of ‘keeping the plants running’
scenario. While we forecast a 5% cement price decline in FY10 (with large price
declines only from 2HFY10), we believe investors should focus on ‘supply
discipline’ or the lack of it to gauge the magnitude of cement price declines we
would potentially see over FY10-11.
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(91-22) 6639 3018 16 April 2009
Figure 13: Change in cement prices and cement capacity Figure 14: Change in cement prices and cement utilization
14% 30% 100% 30%
12%
95%
10% 20% 20%
8% 90%
10% 10%
6% 85%
4% 0% 0%
80%
2%
0% -10% 75% -10%
FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY08
Capacity Cement Prices Cap Util Cement Prices
Cost reduction across fuel and freight

After seeing massive cost inflation, primarily from imported coal, FY10E should see
the industry benefiting materially from lower imported coal costs and possibly
stable/lower freight costs as fuel prices come down. We estimate the above two cost
elements (which together account for ~50% of operating costs) should raise EBITDA
margins by 150-250bp.
Figure 15: Cost breakup of a typical cement company

% of operating costs
Freight 24%
Selling and
distribution ex p 15%
Other Manufacturing Raw materials 23%

ex p 11%
Pow er and energy

Employ ee ex p 6%
22%
While rupee has depreciated, import coal prices have

sharply declined
Admittedly, a sharp rupee depreciation of around 25% has to an extent offset the
very steep decline in imported coal prices. However, even after adjusting for the
rupee depreciation, landed coal costs are down nearly 60% from the peak levels,
driven primarily by the decline in spot coal prices, but also by falling freight rates.
Given the lower availability of linkage coal, the Indian cement industry has to
increasingly source its coal requirements from a combination of imports and
domestic e-auction coal purchases. We see the full benefit of lower coal prices to
flow through from the Jun-09 quarter, given that companies across the industry carry
inventories of around 1-2 months.
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(91-22) 6639 3018 16 April 2009
Figure 16: Rupee depreciation has partially offset the import coal price Figure 17:… But landed cost has declined sharply from its peak
decline… Rs/MT
200 8,500
52
Declined 63% from
7,500 its peak
150 47
6,500
100 42 5,500
4,500
50 37
3,500
Apr-08 May -08 Jul-08 Sep-08 Nov -08 Jan-09 Mar-09
2,500
Coal Price (USD/MT) INR Rate Apr-08 May -08 Jul-08 Sep-08 Nov -08 Jan-09 Mar-09
Source: Bloomberg. Source: Bloomberg and J.P. Morgan calculations.
However, long-term coal availability still remains a

challenge for the industry
Given the increasing pressure on domestic coal availability for power plants and
India’s increasing imports of thermal coal (even a public sector aluminum company,
NALCO has had to resort to coal imports in order to meet its coal requirements), we
believe linkage coal availability is likely to remain an issue for the industry. While
certain companies have been allocated captive coal mining blocks, given the delays
in various clearances, we believe supplies from these blocks are unlikely in the near
term. We expect the industry to look at acquiring coal assets overseas. In fact,
one of the key strategic dilemmas to be faced by companies with strong balance
sheets and cash flows in the industry, in our view, is that of the choice between
the acquisition of coal and cement assets.
13
(91-22) 6639 3018 16 April 2009
Figure 18: Coal linkages v/s cement capacity addition Figure 19: Receipt of linkage coal v/s non-linkage fuel sources
MT MT
20 190.0 15 15
170.0
12
18 150.0
10
130.0 9
16
110.0 6
5
14 90.0
2 3
70.0
12 50.0 0 0
FY90 FY92 FY94 FY96 FY98 FY00 FY02 FY04 FY06 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07
Linkages (MT) Cement Capacity Receipt (MT) Non Linkage fuel
Source: CMA, J.P. Morgan estimates. Source: CMA, J.P. Morgan estimates. Non-linkage fuel includes open market purchase of coal,
import of coal, lignite, and CP coke purchase.
Cement prices: Supply discipline key to

pricing
We are surprised positively by the aggressive price increases seen in cement in Feb-
Mar 2009 across most parts of India, with northern India seeing the bulk of price
hikes. Given the delays in capacity additions and ramp-up, and our confidence of a
more disciplined cement industry, we now forecast a 5% cement price decline in
FY10 (with increases skewed towards 2HFY10) and 5% in FY11.
Recent increases sharply higher than our estimates

Contrary to our expectations of flat prices in the Mar-09 quarter, cement prices
increased by 2-4% across most regions, given the strong demand and new
capacities still in ramp-up mode (capacities which got commissioned over the
last six months). While we would be surprised in case of further price increase over
May-Jun 2009, we expect any current pricing strength (of flat prices at least) to last
till June 2009. While there has been some speculation of potential clinker shortages
driving the sharp price increases over the past two months, we are not firm believers
in this, given that clinker production has been relatively strong and more importantly
closing stocks of clinker remain above-average norms.
14
(91-22) 6639 3018 16 April 2009
Figure 20: National cement prices and Y/Y change

40
250
30
220 20
190 10
-
160
(10)
130 (20)
Apr-95 Jul-96 Oct-97 Jan-99 Apr-00 Jul-01 Oct-02 Jan-04 Apr-05 Jul-06 Oct-07 Jan-09
Price (Rs/50kg bag) Change (YoY %)
Source: CMA.
Figure 21: Cement pricing in key Indian cities and national average
Rs/50Kg bag
250
200
150
100
Apr-94 Feb-95 Dec-95 Oct-96 Aug-97 Jun-98 Apr-99 Feb-00 Dec-00 Oct-01 Aug-02 Jun-03 Apr-04 Feb-05 Dec-05 Oct-06 Aug-07 Jun-08
Mumbai Chennai Delhi Kolkata Ahmedabad National Av erage
Source: CMA, J.P. Morgan estimates.
Figure 22: Change in cement prices in key cities since Dec-08

3.5% 3.3%
3.0%
2.3% 2.2%
2.5%
1.9%
2.0%
1.5% 1.0%
1.0% 0.5%
0.5%
0.0%
Mumbai Kolkata Delhi Ahmedabad Chennai National
Av erage
Source: CMA, J.P. Morgan estimates.
15
(91-22) 6639 3018 16 April 2009
Figure 23: Clinker production and clinker closing stock

MT
8 13
7 12
6 11
5 10
4 9
3 8
Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May -08 Oct-08
Clinker Closing Stock Clinker Production
Source: CMA.
Price cuts likely to start in H2FY10…

We expect cement price cuts to start from 2HFY10 (against our earlier assumption of
Q1FY10E) as production ramp-ups from new capacities and recent demand
momentum dissipate. We expect cement price declines of 5% in FY10 and 5% in
FY11. We believe southern India remains the most challenging region given:
(a) large capacity additions; (b) relatively less consolidation; and (c) waning demand
momentum.
… However, we remain convinced of greater ‘supply

discipline’
While the industry would decisively move into an ‘over supply’ situation, we are
confident of a more ‘disciplined’ industry overall. We believe the relatively high
level of consolidation is a key change compared to previous years. Overall, five
companies now account for 43% of Feb-09 capacity share. As can be seen in charts
below, north India is the most consolidated region, followed by east India.
Figure 24: Consolidation in north India based on FY10E capacity Figure 25: Consolidation in south India based on FY10E capacity
Others 26%
Dalmia 11%
ACC 12%
Kesoram 9%
JK Group Others 53%

Madras
14% Ambuja 11%
Cement 8%
India Cements
Shree Cement Grasim 20% 11%
16% Ultratech 8%
16
(91-22) 6639 3018 16 April 2009
Figure 26: Consolidation in east India based on FY10E capacity Figure 27: Consolidation in west India based on FY10E capacity
ACC 16% Ambuja 13%
Others 32%
Grasim 13%
Others 42%
Ambuja 15%
Ultratech 19%
OCL 16% Jaiprakash
Lafarge 11% 12% Century 12%
Industry leverage remains low

Other than a highly consolidated industry, another positive change has been the
reduction in financial leverage across most firms. Given the healthy balance sheets
across major cement companies, we believe we are unlikely to see a ‘keep the plants
running’ scenario across India. Having said this, some micro markets which see large
increases in supplies may see more than the average 5% price cuts we have assumed.
Figure 28: Net debt/equity has improved with EBITDA margin improvement
%, x
1.14 1.15 1.13

35% 1.05 1.05 32.1% 1.20
1.00 0.98
0.87 1.00
30% 0.79 32.4%
22.5% 0.80
25%
18.4% 0.51 0.60
20% 0.30
13.9% 14.2% 14.0% 15.8% 0.22 0.40
15% 17.4% 18.6% 0.20
16.1% 17.3%
10% 0.00
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Net debt/Equity EBITDA %
Source: Company reports.
Stronger earnings outlook means M&As

likely to be delayed
A relatively robust earnings scenario for FY10, in our view, could delay a potential
M&A scenario in the industry. We also believe that with coal security likely to
emerge as a ‘competitive advantage’, we may see companies caught between
acquiring coal assets or acquiring cement assets which may not come cheap
given the relatively robust earnings profile. While current greenfield replacement
costs range between $100MT and $120/MT, we see little possibility of any seller not
wanting a premium above the replacement cost. While forecasting with any degree of
17
(91-22) 6639 3018 16 April 2009
certainty on who could be the likely sellers, we believe among majors, Grasim with a
strong free cash flow generation and a robust balance sheet should be a potential
acquirer of assets.
Table 8: Historical M&A in cement India

RsMM, $/MT
Acquired Capacity Location Invst. EV/MT Comment
Acquirer company (MTPA) (RsMM) (US$/MT) Year
Gujarat Ambuja Modi Cement 1.8 Madhya Pradesh 1,660 53 1997 93.55% stake acquired
Grasim Indian Rayon 3.2 Karnataka, 56 1998 Group consolidation
Maharashtra
India Cements Raasi Cement 1.8 Andhra Pradesh 3,200 75 1998 73% stake acquired
Lafarge Tisco 1.73 Madhya Pradesh, 5,500 75 1998 100% acquired
Bihar
Gujarat Ambuja ACC 11.94 Multiple locations 7,080 144 1999 14.4% strategic stake acquired
Italicementi Zuari Cement 1.7 Andhra Pradesh 3,400 100 2000 -
Lafarge Raymond 2.24 Madhya Pradesh 7,850 80 2000 100% stake acquired
Woolens
Grasim L&T 17 Multiple locations 21,815 78 2001-04 51% stake acquired of cement business
Holcim ACC-Ambuja 20.2 Multiple locations 35,200 99 2005 Acquired 40% of Ambuja Cement India, which
Cement Eastern holds 13.8% of ACC and 94% of Ambuja Cement
Eastern, cash infusion to increase stake in
Ambuja Cement India to 67%, and open offer for
ACC at Rs370/share to increase stake to 50.1%
and Eastern at Rs70/share for 6%
Holcim Gujarat Ambuja 13.3 Multiple locations 45,300 183 2006 Acquired 14.8% of promoters stake; open offer
for additional 20% stake announced
Holcim Gujarat Ambuja 18 Multiple locations 49,200 277 2007 Acquired 3.9.% of promoters stake; open offer
for additional 20% stake announced
Heidelberg Mysore Cement 2.1 Northern and 90 2006 Acquired promoters stake and then made an
Western India open offer
CRH My Home 4.2 Southern India 18,560 210 2008 Acquired 50% stake in the company, $EV/MT not
Industries fully valid given lack of debt numbers
CIMPOR Shri Digvijay Western India 4,480 165 2008 Acquired 73% stake in the company
Stock price corrections should be buying

opportunities
Cement stocks have run up sharply from their October/November lows, aided by low
valuations, under-ownership, strong cement demand and subsequent price increases.
While we do not expect the demand momentum to sustain (if it does, it would
provide an upside to our cement prices and earnings estimates), and there is an
increased likelihood of potential roll-back of excise duty cuts by the new
government, we would be buyers of cement stocks at weaknesses, given the
relatively strong earnings, robust free cash flow generations, and valuations
which remain comfortably below historical averages.
18
(91-22) 6639 3018 16 April 2009
Figure 29: Cement stocks have outperformed the index from their recent lows since Oct-08
120% 109%
100%
81% 80%
80%
55%
60% 42%
40%
20%
0%
ACC Grasim Ambuja UltraTech BSE Sensex
Source: Bloomberg.
Table 9: Price performance of cement stocks

%
% change
3M 6M YTD 1Y 2Y
Grasim 25% 27% 33% -36% -31%
Ambuja Cement 23% 50% 20% -27% -23%
ACC 22% 26% 24% -25% -22%
UltraTech 57% 50% 42% -29% -28%
India Cement 25% 42% 31% -26% -24%
Century Cement 56% 20% 39% -67% -57%
Shree Cement 65% 76% 66% -25% -13%
Rain Commodities 8% -31% -3% -61% 376%
Chettinad Cement 9% -3% 14% -4% 260%
Kesoram Cement 37% 24% 25% -56% -47%
Source: Bloomberg.
Figure 30: FII holding in cement companies

19% 18.3% 18.6% 18.0%
17.5%
18%
16.9% 16.9%
17%
15.6%
16% 15.1%
15% 14.1%
14% 13.4%
13%
12%
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
19
(91-22) 6639 3018 16 April 2009
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20
(91-22) 6639 3018 16 April 2009
Companies
21
16 April 2009
Neutral
ACC Limited ACC.BO, ACC IN
Price: Rs616.85
Margin gap with peers likely to be sustained
▲ Price Target: Rs560.00
Previous: Rs450.00
• We raise our earnings estimates and price target: We incorporate our India
latest assumption of only a 5% cement price decline in FY10E, compared to Cement
our earlier assumption of a 10% decline. We increase our earnings estimates AC
Pinakin Parekh, CFA
by 2%-22% over CY09-10. We also increase our price target (Mar-10) to (91-22) 6639 3018
Rs560 (based on 5.7x CY09E EV/EBITDA, which corresponds to pinakin.m.parekh@jpmchase.com
US$82/MT on CY09E EV/MT). While ACC’s valuation is in line with its J.P. Morgan India Private Limited
historical average, at the current price ACC offers little upside, in our view.
Price Performance
• CY09-10E large capex program likely to be funded internally: ACC 900
plans to increase its cement capacity from 22.6MT to about 31MT over the
next two years with two large projects of 3MT each expected at Wadi and Rs 600
Chanda. Given that ACC is a debt-free company, and the capex is likely to 300
be financed via internal accruals, we expect free cash flow generation to be Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
negative in CY09 before turning slightly positive in CY10. ACC.BO share price (Rs)
NIFTY (rebased)
• We expect EBITDA margins to continue to lag peers, although the gap YTD 1m 3m 12m
could narrow: Given that ACC has the least share of imported coal in its Abs 19.3% 5.2% 16.4% -27.2%
total coal requirement among large cement companies in India (it has a Rel 7.8% -19.2% -6.8% 2.0%
relatively higher share of third-party domestic coal purchases), the company
is unlikely to benefit strongly from falling imported coal prices, in our view.
We expect ACC’s EBITDA margin gap with peers to continue, although it
could narrow over the next two years.
• We maintain Neutral: Upside risks to our PT are stronger-than-expected

demand and pricing environment over CY09. Given that ACC has a
December year-end, the company should benefit from very strong 1H
CY09E earnings, and most of the pressure from the price cuts will come in
CY10E, in our view. Key downside risks are sharper-than-expected decline
in cement prices and demand. Any potential share buyback by the
company (in the event Holcim wants to increase its stake further)
should provide near-term stock price strength.
Bloomberg: ACC IN; Reuters: ACC.BO
Rs in millions, year-end December
CY07 CY08 CY09E CY10E
Net sales 69,219 73,086 74,974 75,063 52-week range (Rs) 855 - 365
Net profit ( pre-exceptional) 12,051 11,636 11,005 8,868 Market cap (RsMM) 115,239
EPS ( pre-exceptional) (Rs) 65 62 59 48 Market cap (US$MM) 2,316
Net sales growth (%) 20% 6% 3% 0% Shares outstanding (MM) 188
Net profit growth (%) 13% -3% -5% -19% Avg daily value (RsMM) 429.9
ROE (%) 32% 25% 21% 15% Avg daily value (US$MM) 8.7
P/E (x) 9.5 9.8 10.4 12.9 Avg daily volume (MM shares) 0.8
EV/EBITDA (x) 5.6 6.0 6.3 7.6 Index 10,947
EV/tonne (US$) 114.7 97.9 89.6 80.1 Exchange rate (Rs/US$) 49.8
P/BV 3.5 2.7 2.3 2.0 Date of price 16-Apr-09
Source: Company reports, J.P. Morgan estimates. Priced as of 16 April, 2009.
(91-22) 6639 3018 16 April 2009
Company description Table 10: ACC—P&L sensitivity metrics

ACC’s primary activities include EBITDA EPS
manufacture of ordinary portland cement, FY10E impact (%) impact (%)
fly ash-and-slag-based cement. The Sales volume growth assumption
group operates in two segments: Cement Impact of each 1% +/-4% +/-4%
and Ready Mix Concrete. The group has Average realization growth assumption
operations only in India. In Nov-07, the Impact of each 1% +/-4% +/-4%
Group acquired Lucky Minmat Private Raw material cost assumption
Limited & ACC Concrete Ltd. In Impact of each 5% +/-3% +/-3%
October 2008, ACC acquired a 40% Power & energy cost assumption
Impact of each 5% +/-4% +/-5%
stake in Alcon Cement Company with a
capacity of 500 tons/day. Source: J.P. Morgan estimates.
Price target and valuation analysis

We raise our Mar-10 price target to Rs560 to reflect: a) our upward
earnings estimate revisions by 2-22% over CY09-10; and b) an increase
in our CY09E EV/EBITDA cement multiple from 5.5x to 5.7x. We
Figure 31: ACC— CY08 revenue break-up value ACC based on a 5.7x CY09E EV/EBITDA (lower than its
average trading multiple of the past 15 year). Our target multiple is
lower than the historical average one-year forward multiple as we move
into a surplus capacity environment over the next 24 months, and
margins should remain constrained over the next two years. However,
we do not ascribe a large discount to historical averages (our target
Cement multiple is based on 15-20% discount to the average multiple) as we
93% expect earnings to be relatively higher than previous trough cycles. Our
price target corresponds to US$82/MT on EV/MT basis, a 18%-32%
RMC 7% discount to the current replacement costs of US$100-120/MT.
Key risks to our earnings estimates and price target are: a) sharper-than-
expected price declines; b) sharp deterioration in cement demand; c)
regulatory pressure on cement prices.
Table 11: EPS estimates—J.P. Morgan vs.

consensus
Rs J.P. Morgan Consensus
2009E 59.0 50.2
2010E 47.6 38.1
2011E - 35.7
Source: Bloomberg, J.P. Morgan estimates.
23
(91-22) 6639 3018 16 April 2009
Increasing earnings estimates

We revise our cement industry price assumption for FY10 to a 5% decline from the
earlier assumed 10% decline. We maintain our FY11 assumption of a 5% decline.
However, we expect earnings to be stronger in 1H FY10 than in 2H FY10. Given
that ACC has a December year-end, we believe the full benefits of the Mar-09
quarter price increase should flow through in CY09 earnings. Given our assumption
of cement price declines likely to be back-ended in FY10, we expect relatively large
earnings decline in CY10 (as CY09 earnings should be relatively strong).
Table 12: ACC—EPS estimates: J.P. Morgan versus consensus

CY09E CY10E
Old EPS (Rs) 48.5 47.0
New EPS (Rs) 59.0 47.6
% change 22% 1%
Consensus EPS estimates (Rs) 50.2 38.1
% Higher/ ( Lower) than consensus 18% 25%
Table 13: ACC—Summary of estimate changes

CY09E CY10E
Old volumes (MT) 22.1 24.0
New volumes (MT) 21.9 23.5
% change -1% -2%
Old EBITDA per tonne (Rs/MT) 617 493

New EBITDA per tonne (Rs/MT) 828 634
% change 34% 29%
Old EBITDA (Rs Mn) 13,632 11,824

New EBITDA (Rs Mn) 18,133 14,888
% change 33% 26%
Old EBITDA margins 19.2% 16.2%

New EBITDA margins 24.2% 19.8%
% change 26% 22%
Table 14: Sensitivity analysis based on the impact on CY09/FY10 estimates from a 10% decline in
cement prices
CY09 CY09 FY10 FY10
EPS -30% -26% -23% -15%
Net profit -30% -26% -23% -15%
EBITDA -27% -24% -18% -10%
EBITDA -5% -5% -4% -2%
EBITDA/MT -27% -24% -18% -23%
Net debt/equity -5% -4% -4% -2%
24
(91-22) 6639 3018 16 April 2009
Table 15: Cement capacity break-up

All Companies ACC Ambuja Combine
Capacity (MT) Capacity (MT) Market share (%) Capacity (MT) Market share (%) Capacity (MT) Market share (%)
North 68.2 8.2 12.0% 11.9 17.4% 20.1 29.5%
South 85.8 6.2 7.2% - - 6.2 7.2%
East 22.7 5.6 24.7% 2.0 8.8% 7.6 33.5%
West 70.6 7.8 11.0% 11.1 15.7% 18.9 26.8%
All India 247.3 27.9 11.3% 25.0 10.1% 52.9 21.4%
Source: Company reports, J.P. Morgan estimates.
We increase our price target; maintain our Neutral rating

We raise our Mar-10 price target from Rs450 to Rs560 to reflect: (a) our upward
earnings estimate revisions by 2-22% over CY09-10E; and (b) an increase in our
CY09E EV/EBITDA cement multiple from 5.5x to 5.7x. We value ACC at 5.7x
CY09E EV/EBITDA (lower than its average trading multiple of the past 15 years).
Our target multiple is lower than the historical average one-year forward multiple as
we move into a surplus capacity environment over the next 24 months, and margins
should remain constrained over the next two years. However, we do not ascribe a
large discount to the historical averages (our target multiple is based on 15-20%
discount to average multiple) as we expect earnings to be relatively higher than
previous trough cycles. Our price target corresponds to US$82/MT on an EV/MT
basis, a 18%-32% discount to the current replacement cost of US$100-120/MT. Key
risks to our earnings estimates and PT are: (a) sharper-than-expected price declines;
(b) a sharp deterioration in cement demand; and (c) regulatory pressure on cement
prices.
Figure 32: EV/Tonne for large cement companies in India
300
260
220
180
140
100
60
20
Source: Company reports, Bloomberg, J.P. Morgan estimates. Note: Priced as of 16 April 2009.
25
(91-22) 6639 3018 16 April 2009

30
25
20
15
10
5
-
Figure 34: ACC—EV/EBITDA bands

x, Rs
1230
1030
830
10x
630
8x
430 6x
4x
230
30
Apr-96
Nov-96
Jun-97
Jan-98
Sep-98
Apr-99
Nov-99
Jul-00
Feb-01
Sep-01
May-02
Dec-02
Jul-03
Mar-04
Oct-04
May-05
Jan-06
Aug-06
Mar-07
Nov-07
Jun-08
Jan-09
Price (Rs) 4x 6x 8x 10x
26
(91-22) 6639 3018 16 April 2009
Figure 35: ACC—US$ EV/tonne bands

US$, Rs
$200
1250
1050 $150
850
$100
650
$80
450
250
50
Jan-96 Apr-97 Jul-98 Oct-99 Jan-01 Apr-02 Jul-03 Oct-04 Jan-06 Apr-07 Jul-08
Price $80 $100 $150 $200
Figure 36: ACC—P/E bands

x, Rs
ACC-P/E
1600
1400 25x
1200
20x
1000
16x
800
600
12x
400
200
0
Apr-96 Apr-97 Apr-98 Apr-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
27
(91-22) 6639 3018 16 April 2009
All Data As Of 16-Apr-09
Q-Snapshot: ACC Ltd.

Quant Return Drivers (a Score >50% indicates company ranks 'above average') J.P. Morgan Composite Q-Score
Score 0% (worst) to 100% (best) vs Country vs Industry Raw Value
100% HIGH/STRONGER
Value
P/E Vs Market (12mth fwd EPS) 30% 47% 1.2x C
75%
P/E Vs Sector (12mth fwd EPS) 27% 45% 1.2x O
EPS Growth (forecast) 7% 24% -23.3% U
50%
Value Score 15% 29% N
Price Momentum T
25%
12 Month Price Momentum 72% 63% -21.6% R
1 Month Price Reversion 91% 80% 11.3% Y 0% LOW/WEAKER
Momentum Score 78% 69%
0% 25% 50% 75% 100%
Quality
Return On Equity (forecast) 40% 71% 17.0% INDUSTRY
Earnings Risk (Variation in Consensus) 21% 58% 0.18 Quant Return Drivers Summary (vs Country)
Quality Score 26% 71%
100%
Earnings & Sentiment
Earnings Momentum 3mth (risk adjusted) 34% 41% -80.0 75%
1 Mth Change in Avg Recom. 19% 17% -0.18 50%
Net Revisions FY2 EPS 81% 82% 33% 25%
Earnings & Sentiment Score 47% 52%
0%
COMPOSITE Q-SCORE* (0% To 100%) 31% 51% VALUE PRICE QUALITY EARNINGS
Targets & Recommendations** EPS Revisions** EPS Momentum (%) Historical Total Return (%)
25 Targets Recoms 12 5.0 30 24
Consensus Changes (4wks)
10 0.0
(Local Currency %)
20 20 11
8 -5.0 10
15
(%)
6 -10.0 0
10
4 -15.0 -10
5 2 -20.0 -20
0 0 -25.0 -30 -22
-26
Up Dn Unchanged Up Dn Unchanged -1 Mth -3 Mth 1Mth 3Mth 1Yr 3Yr
FY1 FY2 FY1 FY2
Consensus Growth Outlook (%)
20.0 11.1
10.0 3.5 4.4
0.0
-10.0
-20.0 -11.7
-19.6
-30.0
-26.9
EPS Actual To FY1 EPS FY1 To FY2 EPS FY2 To FY3 Cash Flow FY1 To FY2 Dividends FY1 To FY2 Sales FY1ToFY2
Closest in Country by Size (Consensus. ADV = average daily value traded in US$m over the last 3 mths)
Code Name Industry USD MCAP ADV PE FY1 Q-Score*
532149-IN Bank of India Regional Banks 2,661 1.92 4.9 92%
500425-IN Ambuja Cements Ltd. Construction Materials 2,371 0.46 13.3 46%
500111-IN Reliance Capital Ltd. Finance/Rental/Leasing 2,367 24.64 15.3 12%
500520-IN Mahindra & Mahindra Ltd. Motor Vehicles 2,332 1.25 11.3 38%
500570-IN Tata Motors Ltd. Trucks/Construction/Farm Machinery 2,274 3.23 16.1 13%
500410-IN ACC Ltd. Construction Materials 2,225 1.52 13.0 31%
500002-IN ABB Ltd. (India) Electrical Products 2,100 0.88 19.7 24%
500440-IN Hindalco Industries Ltd. Aluminum 2,029 2.25 8.6 3%
500530-IN Bosch Ltd. Auto Parts: OEM 2,023 0.14 16.5 46%
532134-IN Bank of Baroda Regional Banks 1,977 1.13 5.6 93%
531344-IN Container Corp. of India Ltd. Railroads 1,967 0.10 12.3 54%
Source: Factset, Thomson and J.P. Morgan Quantitative Research. For an explanation of the Q-Snapshot, please visit http://jpmorgan.hk.acrobat.com/qsnapshot/
Q-Snapshots are a product of J.P. Morgan’s Global Quantitative Analysis team and provide quantitative metrics summarized in an overall company 'Q-Score.'
Q-Snapshots are based on consensus data and should not be considered as having a direct relationship with the J.P. Morgan analysts’ recommendation.
* The Composite Q-Score is calculated by weighting and combining the 10 Quant return drivers shown. The higher the Q-Score the higher the one month
expected return. On a 14 Year back-test the stocks with the highest Q-Scores have been shown (on average) to significantly outperform those stocks with the
lowest Q-Scores in this universe. ** The number of up, down and unchanged target prices, recommendations or EPS forecasts that make up consensus.
28
(91-22) 6639 3018 16 April 2009
Summary of financials: ACC Limited

Profit and Loss statement Cash flow statement
CY07 CY08 CY09E CY10E CY07 CY08 CY09E CY10E
Revenues 69,219 73,086 74,974 75,063 Net Income (Pre Exceptional) 12,051 11,636 11,005 8,868
% change Y/Y 20% 6% 3% 0% Depreciation & amortization 3,051 2,942 3,420 3,774
EBITDA 18,321 17,328 18,133 14,888 Change in working capital 4,580 3,914 -4,149 1,987
% change Y/Y 17% -5% 5% -18% Cash flow from operations 19,681 18,492 10,276 14,629
EBITDA Margin (%) 26% 24% 24% 20%
EBIT 17,911 17,274 16,212 13,114 Net Capex -8,731 -14,118 -15,971 -10,774
% change Y/Y 17% -4% -6% -19% Free cash flow 10,950 4,373 -5,695 3,854
EBIT Margin (%) 26% 24% 22% 17%
Net Interest 738.7 399.6 262.5 262.5 Equity raised/ (repaid) -113 -1,610 -1 0
Earnings before tax 17,172 16,874 15,950 12,852 Debt raised/ (repaid) -4,648 1,756 -1,320 0
Tax -4,661 -5,238 -4,944 -3,984 Other 2,734 489 0 0
as % of EBT -27% -31% -31% -31% Dividends paid -4,385 -4,391 -3,501 -3,089
Net Income (Pre Exceptional) 12,051 11,636 11,005 8,868 Beginning cash 6,202 7,435 9,842 3,526
% change Y/Y 13% -3% -5% -19% Ending cash 7,435 9,842 3,526 4,792
Shares Outstanding 187.4 187.4 187.4 187.4 DPS 20 20 17 15
EPS (pre exceptional) 64.6 62.4 59.0 47.6
% change Y/Y 14% -3% -5% -19%
Balance sheet Ratio analysis

CY07 CY08 CY09E CY10E % CY07 CY08 CY09E CY10E
Cash and cash equivalents 7,435 9,842 3,526 4,792 EBITDA margin 26% 24% 24% 20%
Accounts receivable 2,893 3,102 3,749 3,753 Operating margin 26% 24% 22% 17%
Inventories 7,309 7,933 7,497 7,506 Net profit margin 17% 16% 15% 12%
Others 4,394 6,475 5,000 5,000
Current assets 22,030 27,352 19,772 21,051 Sales growth 20% 6% 3% 0%
Net profit growth 13% -3% -5% -19%
Investments 8,448 6,791 2,500 2,000 EPS growth 14% -3% -5% -19%
Net fixed assets 39,639 50,816 63,367 70,367
Total assets 70,118 84,958 85,639 93,418 Interest coverage (x) 24.8 43.4 69.1 56.7
Net debt to total capital -6% -6% 0% -1%
Liabilities Net debt to equity -10% -10% 0% -2%
Payables 13,922 17,774 15,000 16,500 Sales/assets 99% 86% 88% 80%
Others 6,663 9,639 7,000 7,500 Assets/equity 162% 172% 151% 149%
Total current liabilities 20,585 27,413 22,000 24,000 ROE 32% 25% 21% 15%
Total debt 3,064 4,820 3,500 3,500 ROCE 38% 32% 27% 20%
Other liabilities 3,315 3,448 3,358 3,358
Total liabilities 26,964 35,681 28,858 30,858
Shareholders' equity 43,154 49,277 56,781 62,560
BVPS 230 263 303 334
Source: Company reports, Bloomberg, J.P. Morgan estimates.
29
16 April 2009
Neutral
Ambuja Cements Limited ABUJ.BO, ACEM IN
Price: Rs80.35
Fairly valued
Previous: Rs60.00
• We increase our earnings estimates and price target: We incorporate India

our latest cement price assumption of a 5% price decline in FY10E India Cement
compared with our earlier assumption of a 10% decline, and Pinakin Parekh, CFA
AC
subsequently increase our earnings estimates by 21-25% over CY09-10. (91-22) 6639 3018
For the same reason, we raise our Mar-10 price target to Rs75 (based on pinakin.m.parekh@jpmchase.com
6.0x CY09E EV/EBITDA, which corresponds to $94/MT on CY09E J.P. Morgan India Private Limited
EV/MT). While our valuations are in line with historical averages, at the
current price Ambuja offers little upside, in our view. Price Performance
• Near-term margin expansion to be constrained by clinker 120
purchases: While Ambuja should benefit from the recent price hikes Rs 80
and also lower imported coal costs (the company sources around 30% of 40
its coal requirement via imports), we expect the near-term margin Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
expansion to be constrained as it faces some clinker issues, and thus is ABUJ.BO share price (Rs)
dependent on outside clinker purchases. We expect the clinker issues to NIFTY (rebased)
be sorted out once the Bhatpara clinker kiln gets commissioned in YTD 1m 3m 12m
H2CY09. Abs 9.8% 12.6% 10.6% -33.9%
Rel -1.7% -11.8% -12.6% -4.7%
• While grinding units have been deferred, the bulk terminal in Kochi
should give access to south India: Ambuja has deferred the Sanand
(1.5MT) grinding unit till 2010, and suspended the Barh grinding unit
(1MT). We do not find the suspension/deferment of grinding units
surprising given the clinker issues. The new bulk terminal at Kochi
should give access to south India; however, we expect the pricing
environment to remain weak in the region.
• We maintain Neutral: We maintain Neutral and raise our Mar-10 price
target to Rs75 from Rs60. Key upside risks to our price target include
continued strength in cement prices and demand, while downside risks
remain a sharper-than-expected decline in cement demand and cement
prices. Any potential share buyback by the company (in the event
Holcim wants to increase its stake further) should provide near-term
stock price strength.
Bloomberg: ACEM IN; Reuters: ABUJ.BO
CY07 CY08 CY09E CY10E
Net sales 57,048 62,346 63,681 63,350 52-week range (Rs) 117.95 - 43
Net profit (pre-exceptional) 9,832 10,939 10,882 9,359 Market cap (RsMM) 122,873
EPS (pre-exceptional, Rs) 6.5 7.2 7.1 6.1 Market cap (US$MM) 2,469
Net sales growth (%) -9 9 2 -1 Shares outstanding (MM) 1,523
Net profit growth (%) -35 11 -1 -14 Avg daily value (RsMM) 149.3
ROE (%) 24 21 18 14 Avg daily value (US$MM) 3.0
EV/EBITDA (x) 5.5 6.5 6.6 7.3 Index 10,947
EV/Tonne ($) 134.2 112.2 101.9 90.6 Exchange rate (Rs/US$) 49.8
P/B (x) 2.6 2.2 2.0 1.8 Date of price 16-Apr-09
Source: Company data, J.P. Morgan estimates. Priced as of 16 April, 2009.
(91-22) 6639 3018 16 April 2009
Company description Table 16: Ambuja—P&L sensitivity metrics

Ambuja Cements Limited was earlier EBITDA EPS
known as Gujarat Ambuja Cements CY10E impact (%) impact (%)
Limited (GACL). The group’s principal Sales volume growth assumption
activity is to manufacture and market Impact of each 1% +/-3% +/-4%
cement and clinker for both domestic and Average realization growth assumption
export markets. The total cement Impact of each 1% +/-3% +/-4%
capacity of the company is 16 million Raw material cost assumption
tonnes. It has three subsidiaries— Impact of each 5% +/-2% +/-3%
Ambuja Cement Rajasthan Limited Power & energy cost assumption
(ACRL), Ambuja Cement Eastern
Limited (ACEL) and Ambuja Cement Source: J.P. Morgan estimates.
India Limited (ACIL). Ambuja also has a

strategic investment in ACC through its Price target and valuation analysis
subsidiary (ACIL). We increase our Mar-10 price target to Rs75 as: (a) we increase our
earnings estimate by 21-25% over CY09-10E; and (b) increase our
CY09E EV/EBITDA cement multiple to 6.0x from 5.5x. We value
Figure 37: Ambuja—CY08 Customer break-up Ambuja on 6.0x CY09E EV/EBITDA (lower than its past 15-year
average trading multiple). Our target multiple is lower than the
historical average one-year forward multiple as we move into a surplus
capacity environment over the next 24 months, and margins should
remain constrained over the next two years. However, we do not
ascribe a large discount to the historical averages (our target multiple is
Domestic based on 15-20% discount to the average multiple) as we expect
Ex port 96% earnings to be relatively higher than previous trough cycles. Our price
4% target corresponds to $94/MT on EV/MT basis, 6-21% discount to
current replacement costs of $100-120/MT.
Key risks to our earnings estimates and price target are: (a) sharper-
than-expected price decline; (b) a sharp deterioration in cement
demand; and (c) regulatory pressure on cement prices.
Table 17: EPS est—J.P. Morgan vs. consensus

(Rs) J.P. Morgan Consensus
2009E 7.1 6.4
2010E 6.1 5.5
2011E - 5.7
31
(91-22) 6639 3018 16 April 2009
We increase our earnings estimates

We change our cement industry pricing assumptions for FY10 to a 5% decline from
our earlier assumption of a 10% decline. We maintain our FY11 assumption of a 5%
decline. We, however, expect earnings to be relatively stronger in 1HFY10 compared
with 2HFY10. As Ambuja has a December year-end, we believe the full benefits of
the Mar-09 quarter price hikes should flow through in this year’s earnings. Given our
assumption that cement price declines could be back-ended in FY10, we see
relatively large earnings decline in CY10 (as CY09E earnings should be relatively
stronger).
Table 18: Summary of J.P. Morgan estimates and consensus

CY09E CY10E
Old EPS (Rs) 5.7 5.1
New EPS (Rs) 7.1 6.1
% change 25% 21%
Consensus EPS estimates (Rs) 6.4 5.5
% Higher/ ( Lower) than consensus 11% 12%
Table 19: Summary of change in estimates

CY09E CY10E
Old volumes (MT) 18.9 20.3
New volumes (MT) 18.7 20.0
% change -1% -2%
Old EBITDA per tonne (Rs/MT) 748 656

New EBITDA per tonne (Rs/MT) 978 822
% change 31% 25%
Old EBITDA (Rs Mn) 14,133 13,322

New EBITDA (Rs Mn) 18,252 16,405
% change 29% 23%
Old EBITDA margins 24.1% 22.3%

New EBITDA margins 28.7% 25.9%
% change 19% 16%
cement prices
CY09 CY09 FY10 FY10
EPS -30% -26% -23% -15%
Net profit -30% -26% -23% -15%
EBITDA -27% -24% -18% -10%
EBITDA -5% -5% -4% -2%
EBITDA/MT -27% -24% -18% -23%
Net debt/Equity -5% -4% -4% -2%
Source: JPMorgan estimates.
32
(91-22) 6639 3018 16 April 2009
Table 21: Cement capacity break-up

All companies ACC Ambuja Combine
Capacity (MT) Capacity (MT) Market share (%) Capacity (MT) Market share (%) Capacity (MT) Market share (%)
North 68.2 8.2 12.0% 11.9 17.4% 20.1 29.5%
South 85.8 6.2 7.2% - - 6.2 7.2%
East 22.7 5.6 24.7% 2.0 8.8% 7.6 33.5%
West 70.6 7.8 11.0% 11.1 15.7% 18.9 26.8%
All India 247.3 27.9 11.3% 25.0 10.1% 52.9 21.4%
We increase our price target and maintain Neutral rating

We increase our Mar-10 price target to Rs75 as: (a) we increase our earnings
estimate by 21-25% over CY09-10E; and (b) increase our CY09E EV/EBITDA
cement multiple to 6.0x from 5.5x. We value Ambuja on 6.0x CY09E EV/EBITDA
(lower than its past 15-year average trading multiple). Our target multiple is lower
than the historical average one-year forward multiple as we move into a surplus
capacity environment over the next 24 months, and margins should remain
constrained over the next two years. However, we do not ascribe a large discount to
the historical averages (our target multiple is based on 15-20% discount to the
average multiple) as we expect earnings to be relatively higher than previous trough
cycles. Our price target corresponds to $94/MT on an EV/MT basis, 6-21% discount
to the current replacement cost of $100-120/MT. Key risks to our earnings estimates
and price target are: (a) sharper-than-expected price declines; (b) a sharp
deterioration in cement demand; and
(c) regulatory pressure on cement prices.
300
260
220
180
140
100
60
20
33
(91-22) 6639 3018 16 April 2009

30
25
20
15
10
5
-
Source: Company reports, Bloomberg and J.P. Morgan estimates. Note: Priced as of 16 April, 2009
Figure 40: Ambuja EV/EBITDA band

Rs, x
180
160
140
12x
120
10x
100
8x
80
6x
60
40
20
0
Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08
34
(91-22) 6639 3018 16 April 2009
Figure 41: Ambuja $EV/Tonne band

$, Rs
160 $210
150
$180
140
130
120 $150
110
100 $120
90
80
70
60
50
40
30
20
10
0
Jul-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08
Price (Rs) $180 $210 $120 $150
Figure 42: Ambuja P/E band

x, Rs
200
180
160
140 20x
120
16x
100
12x
80
60 8x
40
20
0
Jul-95 Jun-97 Jun-99 Jun-01 Jun-03 Jun-05 Jun-07
35
(91-22) 6639 3018 16 April 2009
Q-Snapshot: Ambuja Cements Ltd.

100% HIGH/STRONGER
Value
75%
50%
Price Momentum T
25%
0% 25% 50% 75% 100%
Quality
100%
1 Mth Change in Avg Recom. 73% 75% 0.05 50%
0%
30 Targets Recoms 14 6.0 30 24 26
25 12
(Local Currency %)
4.0 20
20 10
2.0 10
8
(%)
15 0
6 0.0
10 -10
4
5 2 -2.0 -20 -14
0 0 -4.0 -30 -24
FY1 FY2 FY1 FY2
10.0 0.4 4.9
0.0
-10.0 -1.4
-5.7
-20.0 -13.4
-30.0
-40.0
-50.0
-46.9
532461-IN Punjab National Bank Regional Banks 2,856 2.23 5.4 95%
532532-IN Jaiprakash Associates Ltd. Industrial Conglomerates 2,790 9.47 24.9 29%
500247-IN Kotak Mahindra Bank Ltd. Financial Conglomerates 2,766 2.79 21.8 25%
500547-IN Bharat Petroleum Corp. Ltd. Oil Refining/Marketing 2,680 0.93 10.3 52%
500425-IN Ambuja Cements Ltd. Construction Materials 2,371 0.46 13.3 46%
500111-IN Reliance Capital Ltd. Finance/Rental/Leasing 2,367 24.64 15.3 12%
500520-IN Mahindra & Mahindra Ltd. Motor Vehicles 2,332 1.25 11.3 38%
500570-IN Tata Motors Ltd. Trucks/Construction/Farm Machinery 2,274 3.23 16.1 13%
500410-IN ACC Ltd. Construction Materials 2,225 1.52 13.0 31%
500002-IN ABB Ltd. (India) Electrical Products 2,100 0.88 19.7 24%
36
(91-22) 6639 3018 16 April 2009
Summary of financials: Ambuja Cements Limited

Profit and loss statement Cash flow statement
CY07 CY08 CY09E CY10E CY07 CY08 CY09E CY10E
Revenues 57,048 62,346 63,681 63,350 PBIT 18,088 15,182 15,312 12,739
% change (Y/Y) -9% 9% 2% -1% Depreciation & amortization 2,363 2,598 2,940 3,666
EBITDA 20,451 17,779 18,252 16,405 Change in working capital 3,305 (2,230) 852 1,550
% change (Y/Y_ -4% -13% 3% -10% Cash flow from operations 25,691 17,304 20,304 19,455
EBITDA margin (%) 36% 29% 29% 26%
EBIT 20,023 16,936 16,512 14,239 Net Capex 7,504 17,263 13,458 9,000
% change Y/Y 2% -15% -2% -14% Free cash flow 7,996 (5,956) 1,216 5,575
EBIT Margin (%) 35% 27% 26% 22%
Net Interest 759 321 270 270 Equity raised/ (repaid) 11 0 (12) 0
Earnings before tax 19,265 16,615 16,242 13,969 Debt raised/ (repaid) 8,077 2,428 (3,820) 458
Tax 9,433 5,676 5,360 4,610 Dividends paid 6,232 4,488 5,117 5,117
as % of EBT 49% 34% 33% 33%
Net Income (Pre Exceptional) 9,832 10,939 10,882 9,359 Beginning cash 3,781 6,508 8,518 4,812
% change Y/Y -35% 11% -1% -14% Ending cash 6,508 8,518 4,812 5,270
Shares Outstanding 1,514 1,523 1,523 1,523 DPS 4 3 3 3
EPS (pre exceptional) 6 7 7 6
% change Y/Y -35% 11% -1% -14%

CY07 CY08 CY09E CY10E % CY07 CY08 CY09E CY10E
Cash and cash equivalents 6,508 8,518 4,812 5,270 EBITDA margin 36% 29% 29% 26%
Others 2,093 3,275 3,000 3,000
Current assets 15,873 23,437 17,364 17,772 Sales growth -9% 9% 2% -1%
Net profit growth -35% 11% -1% -14%
Investments 12,889 3,324 3,500 3,500 EPS growth -35% 11% -1% -14%
Net fixed assets 36,567 51,400 61,918 67,252
Total assets 65,329 78,161 82,782 88,524 Interest coverage (x) 27.0 55.5 67.6 60.8
Net debt to total capital -5% -7% -2% -3%
Liabilities Net debt to equity -7% -10% -3% -3%
Loan funds 3,304 2,887 3,000 3,000 Sales/assets 0.9 0.8 0.8 0.7
Payables 6,755 10,032 8,500 9,000 Assets/equity 1.4 1.4 1.3 1.3
Others 4,936 4,706 5,000 6,000 ROE 24% 21% 18% 14%
Total current liabilities 11,691 14,738 13,500 15,000 ROCE 40% 29% 25% 20%
Other liabilities 3784 3808 3800 3800
Total liabilities 18779 21432 20300 21800
BVPS 30.7 37.2 41.0 43.8
Source: Company data, J.P. Morgan estimates.
37
16 April 2009
Overweight
Grasim Industries Ltd GRAS.BO, GRASIM IN
Price: Rs1,610.30
FY10—Year of strong free cash flow
▲ Price Target: Rs1,850.00
Previous: Rs1,350.00
• We raise our earnings estimates and price target: We incorporate our India
latest assumption of a 5% cement price decline in FY10 compared to our India Cement
earlier assumption of a 10% decline and increase our earnings estimates Pinakin Parekh, CFA
AC
by 1%-30% over FY09-11. We also increase our Mar-10 price target (91-22) 6639 3018
from Rs1,350 to Rs1,850 (based on a sum-of-the-parts methodology). pinakin.m.parekh@jpmchase.com
We believe Grasim’s valuations—based on earnings and assets across J.P. Morgan India Private Limited
Grasim and its subsidiary UltraTech—look compelling. Given its strong
capacity growth, in the event of cement demand surprising on the upside Price Performance
Grasim should benefit from its recent capacity additions. 2,500

Rs 1,500
• FY10-11E—Strong free cash flow generation; cash usage should be
500
the key: As most of the aggressive capacity expansion across cement
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
companies (including its subsidiary Ultratech) has been completed, we
GRAS.BO share price (Rs)
expect Grasim to generate strong free cash flow from FY10. We expect NIFTY (rebased)
the company to play a key role in any potential domestic M&A. We YTD 1m 3m 12m
believe captive coal will emerge as a key competitive advantage for Abs 27.9% 5.0% 17.8% -38.5%
Grasim. However, it remains to be seen how the company utilizes its Rel 16.4% -19.4% -5.4% -9.3%
strong free cash flow over the next 12-18 months.
• VSF—While a strong demand recovery is unlikely in the near term,

increase in cotton prices is a positive: Although we do not expect a “V-
shaped” VSF demand recovery, a rise in cotton prices is a positive for
VSF, in our view. We believe sharply lower sulfur costs should ease
margin pressure in the near term. We expect VSF’s earnings to recover
gradually over the next few quarters.
• We maintain OW: We expect Grasim’s near-term earnings to benefit

from lower coal prices and increase in cement prices. Key risk to our
price target and view is sharper-than-expected decline in cement demand
and prices.
Bloomberg: GRASIM IN; Reuters: GRASS.BO
Rs in millions, year-end March
FY08 FY09E FY10E FY11E
Net sales 157,243 165,205 157,053 161,586 52-week range (Rs) 2,734 - 824
Net profit (post minority) 24,473 21,268 17,723 17,052 Market cap (RsMM) 146,931
EPS (Rs) 267 232 193 186 Market cap (US$MM) 2,953
Net sales growth (%) 17% 5% -5% 3% Shares outstanding (MM) 92
Net profit growth (%) 28% -13% -17% -4% Avg daily value (RsMM) 430.3
ROE (%) 31% 21% 15% 13% Avg daily value (US$MM) 8.7
P/BV (x) 2.1 1.5 1.3 1.2 Index 10,947
EV/EBITDA (x) 4.4 5.5 5.2 5.0 Exchange rate (Rs/US$) 49.8
Div yield (% 1.9% 1.7% 1.6% 1.6% Date of price 16-Apr-09
Source: Company reports, Bloomberg, J.P. Morgan estimates. Priced as of 16 April, 2009.
(91-22) 6639 3018 16 April 2009
Company description Table 22: Grasim—P&L sensitivity metrics

Grasim’s principal activities include EBITDA EPS
manufacture of viscose staple fibre FY10E impact (%) impact (%)
(VSF), cement, sponge iron, chemicals Cement sales volume growth assumption
and textiles. The company’s VSF plants Impact of each 1% +/-0% +/-1%
are located at Nagda in Madhya Pradesh, Cement average realization growth assumption
Kharach in Gujarat and Harihar in Impact of each 1% +/-0% +/-1%
Karnataka, with an aggregate capacity of VSF sales assumption
333,975tpa. Grasim, along with its Impact of each 5% +/-1% +/-1%
subsidiary UltraTech Cement Ltd., has a
capacity of 35MT and is a leading
cement player in India. Source: J.P. Morgan estimates.
Price target and valuation analysis

We raise our Mar-10 price target from Rs1,350 to Rs1,850 to reflect:
(a) our upward earnings estimate revisions by 1%-30% over FY09-11;
and b) an increase in our FY10E EV/EBITDA cement multiple to 5.7x
Figure 43: Grasim—FY08 revenue break-up from 5.5x. We value Grasim using a sum-of-the-parts methodology.
Our price target corresponds to US$81/MT on an EV/MT basis, a 19%-
Tex tiles 33% discount to the current replacement cost of US$100-120/MT.
1% VSF
Chemical
19% Key risks to our earnings estimates and PT are: (a) a sharper-than-
3%
Sponge expected cement price decline; b) a sharp deterioration in cement
6% demand; and c) regulatory pressure on cement prices.
Cement
72%

Rs J.P. Morgan Consensus
FY09E 231.9 233.9
FY10E 193.2 189.1
FY11E 186 172.9
39
(91-22) 6639 3018 16 April 2009
We raise our earnings estimates

We revise our cement industry price assumption for FY10 to a 5% decline from our
earlier assumption of a 10% decline. We maintain our FY11 assumption of a 5%
decline. However, we expect earnings to be relatively strong in 1H FY10 compared
to 2H FY10. We expect cement segment earnings for Grasim to benefit from:
a) lower fuel costs across both Grasim and its subsidiary UltraTech; and b) lower-
than-expected cement price declines in FY10 (also price declines are likely to occur
from a higher level, given the price increase in the March-09 quarter)
Table 24: EPS estimates—J.P. Morgan versus consensus

FY09E FY10E FY11E
Old EPS (Rs) 229.2 148.9 181.0
New EPS (Rs) 231.9 193.2 185.9
% Change 1% 30% 3%
Consensus EPS estimates (Rs) 233.9 189.1 172.9
% Higher/ ( Lower) than consensus -1% 2% 8%
Source: J.P. Morgan estimates, Bloomberg.
Table 25: Sensitivity analysis based on impact on CY09/FY10 estimates from a 10% decline in
cement prices
CY09 CY09 FY10 FY10
EPS -30% -26% -23% -15%
Net Profit Rs Mn -30% -26% -23% -15%
EBITDA Rs Mn -27% -24% -18% -10%
EBITDA % -5% -5% -4% -2%
EBITDA/MT -27% -24% -18% -23%
Net Debt/Equity -5% -4% -4% -2%
Pan-India presence a positive, in our view

Grasim, along with its subsidiary UltraTech, has a pan-India presence with decent
capacity share across key regions. We believe Grasim’s across-the-country presence
means the company is not highly exposed to any particular regional price declines.
Given our expectation of cement prices to be the weakest in southern India, we see
this as a positive.
Table 26: Grasim + UltraTech—Capacity break-up post expansions

MT, %
All companies Grasim UltraTech Combine
FY10E capacity (MT) Capacity (MT) Market share (%) Capacity (MT) Market share (%) Capacity (MT) Market share (%)
North 68.2 12.5 18% - - 12.5 18%
South 85.8 6.2 7% 8.0 9% 14.2 17%
East 22.7 - - 2.6 11% 2.6 11%
West 70.6 7.3 10% 12.9 18% 20.2 29%
All India 247.3 26.0 11% 23.5 10% 49.5 20%
VSF earnings recovery likely in 2H FY10

Although we do not see a strong demand recovery for VSF in the very near term, we
are enthused by the recent sharp increases in cotton prices globally (VSF is a
40
(91-22) 6639 3018 16 April 2009
competing fibre to cotton). While VSF prices have declined, cost pressure has also
materially eased with a sharp fall in sulfur costs. We believe 3Q FY09 VSF EBITDA
margins were the cyclical lows. We expect a gradual VSF EBITDA margin recovery
from now. VSF is still a high-ROIC business.
Table 27: Grasim's VSF business assumptions

FY09E FY10E FY11E
Volume growth -17.8% 8.7% 20.0%
Sales growth -19.6% 0.0% 12.5%
EBITDA (RsMM) 4,943 5,907 7,597
EBITDA margin 20.5% 24.5% 28.0%
Figure 44: VSF—EBITDA margins and EBITDA

%
40% 12,000
10,000
35%
8,000
30% 6,000
4,000
25%
2,000
20% 0
FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07 FY09E FY11E
EBITDA (Rs Mn) EBITDA %
Strong free cash generation

We believe Grasim benefits from having completed most its projects; hence, its free
cash flows should be relatively strong over the next two years and the company
should move into a net cash position. With an under-leveraged balance sheet, and
strong free cash flows, we believe cash usage will be key (if spent on acquisitions—
on what acquisitions and at what price?). While we expect the company to look at
acquiring cement assets, given the reducing coal linkage supplies, we expect it to
also look at acquiring coal assets.
41
(91-22) 6639 3018 16 April 2009
Figure 45: Grasim—Free cash flow versus debt/equity ratio

40,000 29,584 1.50
1.36 22,600
30,000
20,000 12,137
6,013 7,518 1.00
10,000 1,071
- 0.51
(10,000) 0.65 0.69 0.50
0.58 0.61 0.41
(6,415)
(20,000) (12,413) 0.17
(30,000) (20,730) -
0.03
FY03 FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
Free Cash Flow Net Debt/Equity
We raise our price target; maintain OW

We increase our Mar-10 price target from Rs1,350 to Rs1,850 to reflect: a) our
upward earnings estimate revisions by 1%-30% over FY09-11; and b) an increase in
our FY10E EV/EBITDA cement multiple to 5.7x from 5.5x. We value Grasim based
on a sum-of-the-parts methodology. Our price target corresponds to US$81/MT on
an EV/MT basis, a 19%-33% discount to the current replacement cost of US$100-
120/MT. Key risks to our earnings estimates and PT are: (a) sharper-than-expected
cement price declines; (b) a sharp deterioration in cement demand; and (c) regulatory
pressure on cement prices.
Table 28: Grasim—Sum-of-the-parts multiples

Multiple
VSF 6.0x of EBITDA
Cement 5.7x of EBITDA
Chemicals 2.0x of Sales
42
(91-22) 6639 3018 16 April 2009
Table 29: Grasim—Implied cement EV/tonne

FY09E FY10E
CMP 1850 1850
No of shares 91.7 91.7
Mkt cap. 169645 169645
Grasim standalone debt 35,000 20,000

54% of UTCEM debt 10,860 6,516
Total debt 45,860 26,516
Grasim cash + liquid investments 2,567 5,550

54% of UTCEM 1,340 2,047
Total cash 3,907 7,597
Net debt 41,953 18,919

Total EV 211,598 188,564
VSF EBITDA 4942.55 5906.95

VSF EV@6.0x 27,184 32,488
Chemicals sales 4250 4500

EV @2.0x sales 8500 9000
Cement EV 175,914 147,076
Grasim Cement 26.00 26.00

54% of UTCEM 12.54 12.76
Total cement 38.54 38.76
Cement EV/MT 4,564 3,794

In US$ 97 81
Figure 46: EV/EBITDA for large cement companies in India

30
25
20
15
10
5
-
43
(91-22) 6639 3018 16 April 2009
Figure 47: Grasim—EV/EBITDA bands

x, Rs
4,000
3,500
10x
3,000
2,500
7x
2,000
1,500 5x
4x
1,000
500
0
Apr-96 Apr-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08
Figure 48: Grasim—P/E bands

x, Rs
4500
4000
3500
3000
15x
2500
2000
10x
1500
7x
1000
5x
500
0
Apr-96
Nov-96
Jun-97
Jan-98
Sep-98
Apr-99
Nov-99
Jun-00
Feb-01
Sep-01
Apr-02
Nov-02
Jul-03
Feb-04
Sep-04
Apr-05
Dec-05
Jul-06
Feb-07
Sep-07
May-08
Dec-08
44
(91-22) 6639 3018 16 April 2009
Q-Snapshot: Grasim Industries Ltd.

100% HIGH/STRONGER
Value
75%
50%
Price Momentum T
25%
0% 25% 50% 75% 100%
Quality
100%
1 Mth Change in Avg Recom. 31% 28% -0.07 50%
0%
25 Targets Recoms 25 4.0 30 25
2.0 20
(Local Currency %)
20 20 9
0.0 10
15 15 -2.0 0
(%)
10 10 -4.0 -10
-6.0 -20
5 5
-8.0 -30 -19
0 0 -10.0 -40
-35
FY1 FY2 FY1 FY2
0.0
-5.0 -0.6
-10.0 -7.4 -7.0
-15.0 -12.4
-20.0
-19.2
-25.0
-30.0
-28.2
532234-IN National Aluminium Co. Ltd. Aluminum 3,187 0.44 12.4 9%
500790-IN Nestle India Ltd. Food: Major Diversified 3,156 0.73 23.8 79%
532810-IN Power Finance Corp. Ltd. Finance/Rental/Leasing 3,094 0.36 12.0 34%
532921-IN Mundra Port & Special Economic Zone Ltd. Other Transportation 3,063 1.76 40.4 21%
500390-IN Reliance Infrastructure Ltd. Electric Utilities 3,031 23.24 13.6 53%
500300-IN Grasim Industries Ltd. Construction Materials 2,881 1.40 7.2 47%
532461-IN Punjab National Bank Regional Banks 2,856 2.23 5.4 95%
532532-IN Jaiprakash Associates Ltd. Industrial Conglomerates 2,790 9.47 24.9 29%
500247-IN Kotak Mahindra Bank Ltd. Financial Conglomerates 2,766 2.79 21.8 25%
500547-IN Bharat Petroleum Corp. Ltd. Oil Refining/Marketing 2,680 0.93 10.3 52%
45
(91-22) 6639 3018 16 April 2009
Grasim Industries Ltd: Summary of financials

FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E
Revenues 157,243 165,205 157,053 161,586 Net income (pre-exceptional) 30,095 25,360 21,440 20,454
% change Y/Y 17% 5% -5% 3% Depreciation & amortization 5,905 7,839 9,181 9,437
EBITDA 47,667 41,989 39,551 37,066 Change in working capital 1,992 -10,324 5,962 -3,519
% change Y/Y 27% -12% -6% -6% Cash flow from operations 37,992 22,876 36,584 26,372
EBITDA margin (%) 30% 25% 25% 23%
EBIT 46,539 37,450 33,870 31,329 Net capex -50,404 -29,291 -7,000 -3,772
% change Y/Y 31% -20% -10% -8% Free cash flow
EBIT margin (%) 30% 23% 22% 19% -12,413 -6,415 29,584 22,600
Net interest 1,827 3,425 2,720 1,250 Equity raised/ (repaid)
Earnings before tax 44,712 34,025 31,150 30,079 Debt raised/ (repaid) -1,116 -1,768 -4,343 -3,935
% change Y/Y 33% -24% -8% -3% Other 7,040 -771 -23,000 -16,000
Tax 14,617 8,665 9,710 9,625 Dividends paid 2,751 7,822 4,659 3,387
as % of EBT 33% 25% 31% 32% Beginning cash -3,164 -2,927 -2,614 -2,614
Net income (pre-exceptional) 30,095 25,360 21,440 20,454 Ending cash 3,692 2,903 1,631 6,916
Minority interest 4,595 4,093 3,717 3,402 DPS 2,903 1,631 6,916 10,355
PAT (post minority interest) 24,473 21,268 17,723 17,052
EPS-consolidated 267 232 193 186
% change Y/Y 28% -13% -17% -4%

FY08 FY09E FY10E FY11E % FY08 FY09E FY10E FY11E
Inventories 17,450 18,065 17,233 18,802 EBITDA margin 30% 25% 25% 23%
Debtors 10,185 10,530 9,399 9,725 Operating margin 30% 25% 25% 23%
Cash and bank balances 2,903 1,631 6,916 10,355 Net profit margin 19% 15% 14% 13%
Loans and advances 12,047 14,000 11,000 11,000
Total CA 42,585 44,226 44,549 49,882
Sales growth 17% 5% -5% 3%
LT investments 16,607 13,820 12,820 12,820 EPS growth 28% -13% -17% -4%
Net fixed assets 129,223 150,674 148,493 142,828
Goodwill 19,913 16,824 16,824 16,824 Interest coverage (x) 26.1 12.3 14.5 29.7
Total assets 208,327 225,544 222,686 222,354 Net debt to total capital 25% 24% 11% 3%
Net debt to equity 51% 41% 17% 3%
Liabilities Sales/assets 75% 73% 71% 73%
Provisions 0 622 622 498 Assets/equity 228% 201% 176% 158%
Other current liabilities 36,783 28,750 29,750 28,250 ROE 31% 21% 15% 13%
Total current liabilities 36,783 29,372 30,372 28,748 ROCE 30% 20% 17% 16%
Total debt 55,771 55,000 32,000 16,000
Other liabilities 24,336 29,069 33,728 37,115
Total liabilities 116,889 113,441 96,100 81,863
Source: Company reports, Bloomberg, J.P. Morgan estimates.
46
16 April 2009
Overweight
UltraTech Cement Ltd ULTC.BO, UTCEM IN
Price: Rs546.55
Attractive valuations
Previous: Rs475.00
• We increase our earnings estimates and price target: We incorporate India

our latest cement price assumption of a 5% price decline in FY10 India Cement
compared with our earlier assumption of a 10% decline and Pinakin Parekh, CFA
AC
subsequently increase our earnings estimates by 8-40% over FY09-11. (91-22) 6639 3018
We increase our Mar-10 price target to Rs670 (based on 5.7x FY11E pinakin.m.parekh@jpmchase.com
EV/EBITDA). We believe valuations across earnings and asset based, J.P. Morgan India Private Limited
for UltraTech remain compelling.
Price Performance
• Operational cost savings beyond coal: UltraTech is likely to see 800
operational cost savings beyond lower coal prices, given the Rs 500
commissioning of its captive power plants. The company is increasing
200
its captive power capacity to 80% by setting up 225MW of captive
Apr-08 Jul-08 Oct-08 Jan-09 Apr-09
power plants, which should reduce its power costs, in our view.
ULTC.BO share price (Rs)
NIFTY (rebased)
• Strong free cash flows over FY10-11E: Like Grasim, having
YTD 1m 3m 12m
completed most of its large capex plans across cement and power,
Abs 34.6% 13.4% 46.2% -32.3%
UltraTech should have strong free cash flows over FY10-11E. We
Rel 23.1% -11.0% 23.0% -3.1%
believe cash usage (if used on acquisitions then, what assets and at what
price) remains a key variable to focus on.
• Near-term earnings to benefit from lower coal, cement price hikes;

key risk remains a sharper-than-expected decline in cement demand
and prices: Our Mar-10 price target of Rs670 (up from Rs475) is based
on 5.7x FY10E EV/EBITDA (which corresponds to $83/MT on
EV/MT). UltraTech is among the cheapest large-cap cement stocks in
India. Key risks to our earnings estimates and price target remain a
sharper-than-expected price and demand declines.
Bloomberg: UTCEM IN; Reuters: ULTC.BO
FY08 FY09E FY10E FY11E
Net sales 55,092 61,775 61,116 61,056 52-week range (Rs) 843 - 245.25
Net profit 10,076 8,975 8,151 7,461 Market cap (RsMM) 67,353
EPS (Rs) 80.9 72.1 65.5 59.9 Market cap (US$MM) 1,354
Net sales growth (%) 12.2 12.1 (1.1) (0.1) Shares outstanding (MM) 124
Net profit growth (%) 28.8 (10.9) (9.2) (8.5) Avg daily value (RsMM) 52.1
ROE (%) 45.2 28.6 20.6 15.9 Avg daily value (US$MM) 1.1
P/B (x) 2.5 1.9 1.6 1.3 Index 10,947
EV/EBITDA (x) 4.8 5.1 4.7 4.6 Exchange rate (Rs/US$) 49.8
EV/tonne (US$) 108 79 69 60 Date of price 16-Apr-09
Source: Company data and J.P. Morgan estimates. Priced as of 16 April, 2009.
(91-22) 6639 3018 16 April 2009
Company description Table 30: UltraTech—P&L sensitivity metrics

UltraTech Cement Limited has an annual EBITDA EPS
capacity of 18.2 million tonnes. It FY10E impact (%) impact (%)
manufactures and markets ordinary Sales volume growth assumption
portland cement, portland blast furnace Impact of each 1% +/-2% +/-2%
slag cement and portland pozzalana Average realization growth assumption
cement. It also manufactures ready-mix Impact of each 1% +/-4% +/-5%
concrete (RMC). UltraTech Cement has Raw material cost assumption
five integrated plants, six grinding units Impact of each 5% +/-2% +/-3%
and three terminals—two in India and Power & energy cost assumption
one in Sri Lanka. UltraTech Cement is
the country’s largest exporter of cement Source: J.P. Morgan estimates.
clinker. Its export markets span countries

around the Indian Ocean, Africa, Europe Price target and valuation analysis
and the Middle East. UltraTech Cement We increase our Mar-10 price target to Rs670 as: (a) we increase our
earnings estimate by 8-40% over FY09-11; and (b) we increase our
operates as a subsidiary of Grasim
FY10E EV/EBITDA multiple to 5.7x. We value UltraTech on 5.7x
Industries Limited.
FY10E EV/EBITDA multiple, which is lower than its average trading
one-year forward multiple. Our target multiple is lower than the
Figure 49: UltraTech—FY08 customer break-up
historical average one-year forward multiple as we move into a surplus
capacity environment over the next 24 months, and margins should
remain constrained over the next two years. However, we do not
Ex port ascribe a large discount to the historical averages (our target multiple is
9% based on 15-20% discount to average multiple) as we expect earnings
to be relatively higher than previous trough cycles. Our price target
corresponds to $83/MT on an EV/MT basis, 17-31% discount to the
Domestic current replacement cost of $100-120/MT.
91%
Key risks to our earnings estimates and price target are: (a) a sharper-
than-expected price declines; (b) a sharp deterioration in cement
demand; and (c) regulatory pressure on cement prices.

(Rs) J.P. Morgan Consensus
FY09E 72.1 73.8
FY10E 65.5 59.7
FY11E 59.9 46.1
48
(91-22) 6639 3018 16 April 2009
We increase our earnings estimates

We change our cement industry pricing assumption for FY10 to a 5% decline from
our earlier assumption of a 10% decline. We maintain our FY11 assumption of a 5%
decline. We, however, expect earnings to be relatively stronger in 1HFY10 compared
with 2HFY10. UltraTech should benefit not only from lower coal costs (we believe
the company is dependent on 40-45% imported coal, the highest among large cement
companies), but also from increasing reliance on captive power plants. We believe
the commissioning of 225MW power plants would take captive power generation to
around 80%.
Table 32: Summary of J.P. Morgan estimates and consensus

FY09E FY10E FY11E
Old EPS (Rs) 66.7 47.1 48.7
New EPS (Rs) 72.1 65.5 59.9
% change 8% 39% 23%
Consensus EPS estimates (Rs) 74.5 64.4 46.3
% Higher/ ( Lower) than consensus -3% 2% 29%
Table 33: Summary of change in estimates

FY09E FY10E FY11E
Old volumes (MT) 18.2 20.4 22.4
New volumes (MT) 16.3 17.8 19.1
% change -10% -13% -15%
Old EBITDA per tonne (Rs/MT) 848 638 585

New EBITDA per tonne (Rs/MT) 931 840 700
% change 10% 32% 20%
Old EBITDA (Rs Mn) 15,244 12,053 12,047

New EBITDA (Rs Mn) 16,740 16,112 14,194
% change 10% 34% 18%
Old EBITDA margins 25.9% 21.5% 20.7%

New EBITDA margins 27.1% 26.4% 23.2%
% change 5% 23% 12%
Table 34: Grasim + UltraTech capacity break-up post expansions

MT, %
All companies Grasim UltraTech Combine
FY10E capacity (MT) Capacity (MT) Market share (%) Capacity (MT) Market share (%) Capacity (MT) Market share (%)
North 68.2 12.5 18% - - 12.5 18%
South 85.8 6.2 7% 8.0 9% 14.2 17%
East 22.7 - - 2.6 11% 2.6 11%
West 70.6 7.3 10% 12.9 18% 20.2 29%
All India 247.3 26.0 11% 23.5 10% 49.5 20%
49
(91-22) 6639 3018 16 April 2009
Figure 50: UltraTech’s EBITDA/MT and EBITDA margin

Rs, %
35% 28.9% 31.2% 1,200

30% 1,000
25% 800
27.1% 26.4%
20% 16.8%
14% 13% 23.2% 600
15%
10% 400
5% 200
0% -
FY04 FY05 FY06 FY07 FY08 FY09E FY10E FY11E
EBITDA per tonne EBITDA %
cement prices
CY09 CY09 FY10 FY10
EPS -30% -26% -23% -15%
Net Profit -30% -26% -23% -15%
EBITDA -27% -24% -18% -10%
EBITDA -5% -5% -4% -2%
EBITDA/MT -27% -24% -18% -23%
Net debt/Equity -5% -4% -4% -2%
Strong free cash generation

We believe UltraTech, like Grasim, benefits from the completion of most of its
projects and hence free cash flows should be relatively strong over the next two
years, and the company should move into a net cash position. With an under-
leveraged balance sheet, and strong free cash flows, we believe cash usage would be
the key (if spent on acquisitions, than what acquisitions and what price would be key
questions).
Figure 51: UltraTech net debt/equity and free cash flows

Rs in millions, %
15,000 1.34 1.50

9,987 10,846
1.38
10,000 0.84 1.00
0.61 0.54
5,000 2,346 3,804 0.23 0.50
1,689
0 -
(0.01)
-2,477
-5,000 -3,538 (0.50)
FY05 FY06 FY07 FY08E FY09E FY10E FY11E
Free Cash Flow (Rs Mn) (LHS) Net Debt/Equity (RHS)
50
(91-22) 6639 3018 16 April 2009
We increase our price target; maintain OW

We increase our Mar-10 price target to Rs670 as: (a) we increase our earnings
estimate by 8-40% over FY09-11E; and (b) increase our FY10E EV/EBITDA
multiple to 5.6x. We value UltraTech on 5.7x FY10E EV/EBITDA multiple, which
is lower than its average trading one-year forward multiple. Our target multiple is
lower than the historical average one-year forward multiple as we move into a
surplus capacity environment over the next 24 months, and margins should remain
constrained over the next two years. However, we do not ascribe a large discount to
the historical averages (our target multiple is based on 15-20% discount to the
average multiple) as we expect earnings to be relatively higher than previous trough
cycles. Our price target corresponds to $83/MT on an EV/MT basis, 17-31%
discount to the current replacement cost of $100-120/MT. Key risks to our earnings
estimates and price target are: (a) a sharper-than-expected price decline; (b) a sharp
deterioration in cement demand; and (c) regulatory pressure on cement prices.

$/MT
300
260
220
180
140
100
60
20

x
30
25
20
15
10
5
-
51
(91-22) 6639 3018 16 April 2009
Figure 54: UltraTech EV/EBITDA band

x, Rs
1,200 10x
1,000
8x
800
6x
600
400 4x
200
Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09
Figure 55: UltraTech $EV/Tonne band

$, Rs
1,400
175$
1,200
150$
1,000
800
100$
600 80$
400
200
Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09
Price (Rs) 80$ 100$ 150$ 175$
52
(91-22) 6639 3018 16 April 2009
Figure 56: UltraTech P/E band

x, Rs
ULTRATECH-P/E
1,200
1,000
15x
800
10x
600
7x
400
5x
200
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08
53
(91-22) 6639 3018 16 April 2009
Q-Snapshot: Ultratech Cement Ltd.

100% HIGH/STRONGER
Value
75%
50%
Price Momentum T
25%
0% 25% 50% 75% 100%
Quality
100%
Earnings Momentum 3mth (risk adjusted) 85% 82% 16.2 75%
1 Mth Change in Avg Recom. 78% 81% 0.09 50%
0%
25 Targets Recoms 14 10.0 80
57
12
(Local Currency %)
20 8.0 60
10
15 6.0 40 19
8
(%)
20
10 6 4.0
4 0
5 2.0
2 -20
0 0 0.0 -40 -20
-29
FY1 FY2 FY1 FY2
10.0 4.4
5.0 2.0
0.0
-5.0
-10.0 -5.0
-7.6
-15.0
-20.0 -13.0
-25.0
-30.0 -23.9
532483-IN Canara Bank Regional Banks 1,520 0.79 4.2 90%
500049-IN Bharat Electronics Ltd. Aerospace & Defense 1,489 0.24 9.6 32%
532432-IN United Spirits Ltd. Beverages: Alcoholic 1,437 12.75 23.4 14%
507878-IN Unitech Ltd. Real Estate Development 1,362 12.48 7.4 3%
500228-IN JSW Steel Ltd. Steel 1,342 2.25 9.8 10%
532538-IN Ultratech Cement Ltd. Construction Materials 1,331 0.22 7.5 83%
532466-IN Oracle Financial Services Software Ltd. Financial Publishing/Services 1,315 0.51 12.1 64%
500830-IN Colgate-Palmolive (India) Ltd. Household/Personal Care 1,244 0.32 22.6 99%
532488-IN Divi's Laboratories Ltd. Pharmaceuticals: Other 1,191 1.34 15.1 53%
522275-IN Areva T&D India Ltd. Electrical Products 1,111 0.30 21.7 51%
500257-IN Lupin Ltd. Pharmaceuticals: Generic 1,109 0.44 12.6 97%
54
(91-22) 6639 3018 16 April 2009
Summary of financials: UltraTech Cement Ltd

FY08 FY09E FY10E FY11E FY08 FY09E FY10E FY11E
Revenues 55,092 61,775 61,116 61,056 Net income (pre-exceptional) 10,076 8,975 8,151 7,461
% change Y/Y 12% 12% -1% 0% Depreciation & amortization 2,372 3,375 3,726 3,772
EBITDA 17,201 16,740 16,112 14,194 Change in working capital 3,141 (1,445) 110 386
% change Y/Y 21% -3% -4% -12% Cash flow from operations 15,589 10,905 11,987 11,618
EBITDA margin (%) 31% 27% 26% 23%
EBIT 15,827 13,965 13,186 11,422 Net capex (18,066) (14,443) (2,000) (772)
% change Y/Y 26% -12% -6% -13% Free cash flow (2,477) (3,538) 9,987 10,846
EBIT margin (%) 29% 23% 22% 19%
Net interest 757 1,500 1,020 450 Equity raised/ (repaid) (16) 611 0 (0)
Earnings before tax 15,070 12,465 12,166 10,972 Debt raised/ (repaid) 1,619 2,595 (8,000) (6,000)
% change Y/Y 29% -17% -2% -10% Other 0 0 0 0
Tax 4,994 3,490 4,015 3,511 Dividends paid (728) (685) (685) (548)
as % of EBT 33% 28% 33% 32% Beginning cash 896 1,007 767 2,070
Net income (pre-exceptional) 10,076 8,975 8,151 7,461 Ending cash 1,007 767 2,070 6,368
% change Y/Y 29% -11% -9% -8%
Shares outstanding 124 124 124 124
EPS (pre-exceptional) 80.9 72.1 65.5 59.9
% change Y/Y 29% -11% -9% -8%

FY08 FY09E FY10E FY11E % FY08 FY09E FY10E FY11E
Cash and cash equivalents 1,007 767 2,070 6,368 EBITDA margin 31% 27% 26% 23%
Others 3,768 3,000 3,000 3,000
Current assets 13,039 14,063 15,256 19,544 Sales growth 12% 12% -1% 0%
Net profit growth 29% -11% -9% -8%
Investments 1,709 1,700 1,700 1,700 EPS growth 29% -11% -9% -8%
Net fixed assets 47,836 58,904 57,178 54,178
Total assets 62,584 74,667 74,133 75,422
Interest coverage (x) 20.9 9.3 12.9 25.4
Liabilities Net debt to total capital 0.3 0.3 0.1 0.0
Payables 7,770 9,000 9,000 9,500 Net debt to equity 0.6 0.5 0.2 0.0
Others 5,016 4,372 4,372 4,248 Sales/assets 0.9 0.8 0.8 0.8
Total current liabilities 12,786 13,372 13,372 13,748 Assets/equity 2.3 2.1 1.7 1.5
Total debt 17,405 20,000 12,000 6,000 ROE 45% 29% 21% 16%
Other liabilities 5424 5424 5424 5423 ROCE 29% 20% 18% 15%
Total liabilities 35614 38796 30796 25171
Source: Company data, J.P. Morgan estimates.
55
(91-22) 6639 3018 16 April 2009
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Client of the Firm: ACC Limited is or was in the past 12 months a client of JPMSI. Ambuja Cements Limited is or was in the past
12 months a client of JPMSI. Grasim Industries Ltd is or was in the past 12 months a client of JPMSI.
ACC Limited (ACC.BO) Price Chart
2,170 Date Rating Share Price Price Target

N Rs520 (Rs) (Rs)
1,860 22-Jan-07 N 1115.80 1220.00
N Rs650
24-Apr-08 N 844.45 920.00
1,550
24-Jul-08 N 591.10 650.00
N Rs1,220 N Rs920 N Rs450
23-Oct-08 N 452.15 520.00
1,240
Price(Rs) 25-Nov-08 N 402.85 450.00
930
620
310
0
Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr
06 06 06 07 07 07 07 08 08 08 08 09 09
Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Mar 03, 2004 - May 09, 2005. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
Ambuja Cements Limited (ABUJ.BO) Price Chart
Date Rating Share Price Price Target

246 (Rs) (Rs)
26-Aug-07 OW 135.40 153.00
205 N Rs90 26-Apr-08 OW 114.80 132.00
27-Jul-08 N 81.80 90.00
164 OW Rs153 OW Rs132 N Rs60
25-Nov-08 N 56.05 60.00
Price(Rs)
123
82
41
0
06 06 06 07 07 07 07 08 08 08 08 09 09
Break in coverage Mar 03, 2004 - Sep 21, 2004. This chart shows J.P. Morgan's continuing coverage of this stock; the
56
(91-22) 6639 3018 16 April 2009
Grasim Industries Ltd (GRAS.BO) Price Chart

OW Rs4,368 OW Rs1,900 (Rs) (Rs)
5,922
01-May-06 N 2517.10 2235.00
OW Rs2,800OW Rs3,520 OW Rs2,700 13-Mar-07 N 2014.25 2800.00
4,935
14-Mar-07 OW 2053.90 2800.00
N Rs2,235 N Rs2,800
OW Rs3,057 OW Rs3,470 OW Rs1,350
3,948 04-Jul-07 OW 2702.55 3057.00
Price(Rs) 30-Jul-07 OW 2946.85 3520.00
2,961 28-Oct-07 OW 3805.55 4368.00
04-May-08 OW 2384.10 3470.00
1,974 27-Jul-08 OW 1817.20 2700.00
24-Oct-08 OW 1182.00 1900.00
987
25-Nov-08 OW 908.40 1350.00
0
06 06 06 07 07 07 07 08 08 08 08 09 09
Break in coverage Mar 03, 2004 - May 09, 2005. This chart shows J.P. Morgan's continuing coverage of this stock; the
UltraTech Cement Ltd (ULTC.BO) Price Chart

OW Rs475 (Rs) (Rs)
1,806
20-Jul-08 OW 538.65 750.00
OW Rs600 19-Oct-08 OW 375.80 600.00
1,505
25-Nov-08 OW 265.40 475.00
OW Rs750
1,204
Price(Rs)
903
602
301
0
06 06 06 07 07 07 07 08 08 08 08 09 09
Initiated coverage Jul 20, 2008. This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst
may or may not have covered it over the entire period.
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
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and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.
Coverage Universe: Pinakin Parekh, CFA: ACC Limited (ACC.BO), Ambuja Cements Limited (ABUJ.BO), Cipla
Limited (CIPL.BO), Dr Reddy's Limited (REDY.BO), Glenmark Pharmaceuticals Ltd (GLEN.BO), Grasim Industries Ltd
(GRAS.BO), Hindalco Industries (HALC.BO), JSW Steel (JSTL.BO), National Aluminium Co Ltd (NALU.BO), Ranbaxy
Laboratories Ltd (RANB.BO), Steel Authority of India Ltd (SAIL.BO), Sun Pharmaceutical (SUN.BO), Tata Steel Ltd
(TISC.BO), UltraTech Cement Ltd (ULTC.BO)
57
(91-22) 6639 3018 16 April 2009
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Asia Pacific Equity Research

India Cement: FY10E -- A likely

• Recent demand momentum unlikely to sustain…: We do not expect the India

ACC Ambuja Ultratech Grasim

The author acknowledges the contribution of Neha Manpuria of J.P. Morgan

We raise our estimates driven by higher

Table 2: J.P. Morgan versus consensus estimates

Figure 1: EBITDA/MT for large cement companies

Top picks: We remain OW on Grasim and

Table 3: Cement valuation matrix

ACC 614 N CY09E 59 (5) 10.4 6.3 90

Ambuja 81 N CY09E 7 (1) 11.3 6.6 102

UltraTech 541 OW FY09E 72 (11) 7.5 5.1 79

India Cement 120 NR FY09E 20 - 6.2 4.0 79

Figure 2: EV/EBITDA for large cement companies

ACC Ambuja Ultratech Grasim

Figure 3: EV/Tonne for large cement companies

Figure 4: EBITDA/MT and FCF for large cement companies

FCF Rs Mn (LHS) EBITDA/MT (RHS) FCF Rs Mn (LHS) EBITDA/MT (RHS)

FCF Rs Mn (LHS) EBITDA/MT (RHS) FCF Rs Mn (LHS) EBITDA/MT (RHS)

Source: Company reports and J.P. Morgan estimates.

Demand momentum unlikely to sustain,

Real GDP Cement Agriculture Manufacturing Construction

Source: RBI and J.P. Morgan estimates.

Figure 8: Cement demand growth as multiplier of GDP growth

3.0 2.7 2.7

Source: RBI, CMC and J.P. Morgan estimates.

Figure 9: Indian cement dispatch growth (FY04-FY11E)

Source: CMA and J.P. Morgan estimates.

Which states/regions are driving cement demand?

MP+Chtg Others 16.2%

AP 10.1% Mah. 12.3%

Demand outlook for FY10-11E across regions; south India

Supply discipline more important than

We expect large greenfield projects, which have not received land

Table 6: India cement demand and capacity outlook

Table 7: Region-wise capacity and demand outlook

We are confident of disciplined supply in major regions

Capacity Cement Prices Cap Util Cement Prices

Cost reduction across fuel and freight

Figure 15: Cost breakup of a typical cement company

Other Manufacturing Raw materials 23%

Pow er and energy

Source: J.P. Morgan estimates.

While rupee has depreciated, import coal prices have

Source: Bloomberg. Source: Bloomberg and J.P. Morgan calculations.

However, long-term coal availability still remains a

Linkages (MT) Cement Capacity Receipt (MT) Non Linkage fuel

Cement prices: Supply discipline key to

Recent increases sharply higher than our estimates

Figure 20: National cement prices and Y/Y change

Price (Rs/50kg bag) Change (YoY %)

Mumbai Chennai Delhi Kolkata Ahmedabad National Av erage

Source: CMA, J.P. Morgan estimates.

Figure 22: Change in cement prices in key cities since Dec-08

Source: CMA, J.P. Morgan estimates.

Figure 23: Clinker production and clinker closing stock

Clinker Closing Stock Clinker Production

Price cuts likely to start in H2FY10…

… However, we remain convinced of greater ‘supply

JK Group Others 53%

Industry leverage remains low