A Research Project on:

Financial Modelling and Valuation of Ambuja Cements

FSC Group 33
Anurith R F19-107
Ashi Arya F19-212
Juan John Matthews F19-121
Satvik Mahajan F19-150

FACULTY OF MANAGEMENT STUDIES

UNIVERSITY OF DELHI

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TABLE OF CONTENTS
1. List of Figures - 3
2. List of Tables – 4
3. Acknowledgement – 5
4. Background and Motivation – 6
5. Project objective – 7
6. Indian economy overview – 8
7. Sector Analysis – 9-13
8. Company Analysis – 14-17
9. Literature review – 18-23
10. Valuation using Direct cash flow method – 24-32
11. Valuation using Market method – 33-36
12. Valuation using analyst reports - 37
11. Results and analysis - 38
12. References - 39

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LIST OF FIGURES
1. Figure 1 - 8
2. Figure 2 - 8
3. Figure 3 - 9
4. Figure 4 - 9
5. Figure 5 - 11
6. Figure 6 - 12
7. Figure 7 - 12
8. Figure 8 - 15
9. Figure 9 - 15
10. Figure 10 - 17

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LIST OF TABLES
1. Table 1 - 14
2. Table 2 – 24-26
3. Table 3 – 27-29
4. Table 4 - 32
5. Table 5 - 33
6. Table 6 - 33
7. Table 7 - 34
8. Table 8 - 34
9. Table 9 - 35
10. Table 10 - 35
11. Table 11 - 36
12. Table 12 - 37
13. Table 13 - 37
14. Table 14 - 37

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ACKNOWLEDGEMENT
On the very outset of this report, we would like to extend my sincere & heartfelt obligation
towards all the individuals who have helped me in this endeavor. Without their active guidance,
help, cooperation & encouragement, we could not have made headway in the project. we are
thankful for their aspiring guidance, invaluably constructive criticism and affable advice during
the project work. We are sincerely grateful to them for sharing their truthful and illuminating
views on several issues related to the project.

We would also like to thank my project guide Ms. Garima Gupta. It is under her valuable
guidance, constant interest and encouragement we have completed this project.

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BACKGROUND AND MOTIVATION
Ambuja Cements formed as Gujarata Ambuja Cements Limited in 1983 is an Indian cement-
manufacturing company. Ambuja Cements is a market leader supplying over 8% of the
production amounting over 31 million tonnes in cement production in 2017. The company was
acquired by LafargeHolcim Limited, the second-largest cement-manufacturing conglomerate in
the world. It owns 50% stake in Ambuja Cements and 50% stake in ACC. Together in 2017,
LafargeHolcim controlled 13% of the production capacity and 11% of the actual production.

The Indian cement sector is set to grow at an elevated rate due to the schemes presented by the
ruling Financial Minister and the government, which are focussed on developing infrastructure
through development of roads, building houses and creating smart cities. All these, especially the
housing sector that accounted for 67% of the market demand for cement, are expected to drive
the demand for cement in the future in the Indian market.

Our project is the financial modelling and valuation of Ambuja Cements. Financial modelling
and valuation of a company includes the basic research about the company, its competitors and
industry to assess the value of the company in the marketplace in comparison with its
competitors.

We decided to select this specific project because of our shared background in the domain of
finance and because of our genuine interest in the domain and our desire to get to know and learn
more about the domain. As we are all interested in finance as our domain, we assessed it best to
do a finance related project to get a hands-on experience into the domain.

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PROJECT OBJECTIVES
Our project is aimed at performing an in-depth analysis of the business and the past financial
reports of Ambuja Cements Limited along with its subsidiaries and its competitors. We have
tried to take multiple methods of valuation to come to a range where we can compare with its
present stock price and conclude the pricing.
1. To study and analyze the landscape of cement sector in India and abroad.
2. To research and analyze the business of Ambuja Cements and its subsidiaries.
3. To gain insight into how valuation is done for corporates.
4. To assess the valuation of the company using different methods.

To access the analyst reports by various agencies, predicting stock price for Ambuja

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INTRODUCTION
Indian Economy Overview

The India cement market is primarily driven by the housing and realty sector. In 2017, this
number stood at 67% of the demand. India has been encouragingly and indirectly supporting the
cement industry through focusing on housing and infrastructure. The production and
consumption of cement in India has been gradually increasing.

Figure 1

In 7 years, the Indian cement production capacity shot up almost by 100 million tonnes. The
duration saw an average growth rate of 6.2% per year.

Figure 2

The consumption driven up from 230 million tonnes in 2012 to 337 million tonnes, with an
addition of almost 100 million additional consumption.

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Sector Overview: Indian Cement Market

India is the second- largest producer of cement in the world after only China. It employs over
one million people and has thus become a vital part of the Indian Economy. The world of cement
production in 2007 stood at 2771 million tonnes, out of which 6% was produced in India. A
decade later, in 2017 The figure increased to 4128 million tonnes. India contributed to 7% of the
world’s production of cement.

Figure 3
*Values are in million tonnes

Figure 4

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The total world production increased China alone produces more than half of the cement
produced annually. This means China produces more cement in a year than the rest of the world
combined. During 2007 and 2017, there has been an overall increase of 1357 million tonnes in
the production capacity of production the world over, with India’s capacity increasing by 100
million tonnes in a decade. The consumption over in 2017 in India was 270 million tonnes.

Cement Market Segmentation

Cement market can be segmented on Product Type and End-User.

On basis of Product type-

• Portland Cement
• Hydraulic Cement
• White Cement
• Aluminous Cement
• Puzzolona Cement
• Geo-Polymer Cement
These product types are differentiated on basis of constituent elements and their ratios.
Portland Cement is the most commonly used.

On basis of End User-

• Residential
• Commercial
• Industrial

Market Size and Capacity

The capacity of production stood at a little over 500 million tonnes per year. There is expected to
be a capacity addition of 20 million tonnes every year during 2019-21 that gives an average
growth rate of 4% in the production capacity per annum. The major drivers for the production
were the real state and the housing sector which together accounted for 65% percent of the total
cement consumed in India.
The top 20 cement-manufacturing companies in India produce 70% of the cement produced
annually. The production stood at 305 million tonnes against the overall production capacity. 210
large cement plants account for 410 million of installed capacity and the rest is accounted for by
350 small plants.

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Companies

The Indian cement market is dominated by the top 20 companies that account for 70% of the
production capacity. Although there is a foreign presence in the cement market, LafargeHolcim
Limited owns 50% stake in ACC and 50% stake in Ambuja Cement individually, the market
experiences an indigenous presence as Ultratech Cement, owned by the Aditya Birla Group is
the market leader in the industry.

In the financial year ending 2016, Ultratech Cement was a market leader with a production
capacity of 80 million tonnes and actual production of 35.5 million tonnes out of the total
production capacity and the actual production in India of 480 million tonnes and about 145
million tonnes respectively.

*Values are in million tonnes.

Figure 5

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Figure 6

Figure 7

Ultratech is the market leader in both production and capacity by having market shares of 24%
and 17% respectively. LafargeHolcim Limited owns 11% of the production and 13% of the
overall production capacity through ACC and Ambuja Cements.

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Investments

Department of Industrial Policy and Promotion reports report that the Indian cement industry
grossed Foreign Direct Income of 364 billion INR between April 2000 and December 2018.
Ultratech Cement recently got approval by the environment ministry on a project in Andhra
Pradesh worth INR 2500 crores.

JK Cement is geared up to spend INR 1500 to increase its production capacity from 10 to 14
million tonnes over the next few years.

Raysut Cement is in plans to invest about INR 4830 crores in India by the year 2022.

Sajjan Jindal led JSW Cement, part of the JSW Group, is planning to invest INR 2000 crores to
achieve a production capacity of 20 million tonnes by December 2020.

Government Initiatives

The government of India is actively pursuing the development and growth of infrastructure in the
country. Many of the programs launched by the government of India in the previous and the
recent budgets focus on developing infrastructure in the form of upgradation of 125000 km of
roads under the Pradhan Mantri Gram Sadak Yojana, provision of 1.95 crore houses under the
phase II of Pradhan Mantri Gramin Awas Yojana.

According to the budget 2018-19, India’s expected expenditure towards house development
under “Housing for All” was INR 645 billion. All these schemes focusing on the development of
infrastructure can claim to be the demand drivers for the production of cement and increase in
the production capacity.

The Way Ahead

The demand for cement in the Indian market is expected to touch 550–600 million tonnes by the
year 2025. The demand drivers for the industry are the housing and real estate sector, public
infrastructure and industrial development, out of which the housing sector accounts for over two-
thirds of the demand aggregating to about 67%. The development of 98 smart cities will also
push the up the demand for cement in the coming years.

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Company Analysis – Ambuja Cement
Overview
Ambuja Cement, a subsidiary of Swiss multinational, LafargeHolcim, is among India’s largest
cement producing company. Ambuja cement has provided infrastructure development solution
since its inception, starting production in 1986. With cement capacity of 29.65 million tonnes,
Ambuja serves both domestic and international market. It owns 5 manufacturing plants, all of
which are ISO 14001 certified and 8 grinding units.
Ambuja has two major principles on which it works daily, Quality and Safety.
Key Details
Founded – 1983
HQ – Mumbai
Founders – Narottam Sekhseria, Suresh Neotia
The brand
The brand has been built around the spirit of ‘I CAN’ which means allowing employees to set
their own goals and furthermore, freedom to how to achieve them. This helps in fostering growth
and aids excellence and efficiency. Ambuja became first company to use sea to transport cement
in bulk, also used exporting port near Ambuja Nagar to compete for market of Mumbai, a route
now used to transport 10% of cement. The brand also wants to reduce carbon footprint and hence
introduced new products, as well being water-efficient (5 times water positive) and plastic
neutral. The Ambuja brand has sustainable profitable growth in its DNA.
Financial Performance
For CY2018, Ambuja’s net profit increased by 16% with Rs 1487Cr and net sales at Rs
10,977Cr, with increase of 6.6%.
Some of Key ratios for CY 2018 as follows

EV/EBITDA EBITDA/MT EPS RoCE Current Ratio

21.9 ₹781/Tonne 7.49 8% 1.55

Table 1

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Figure 8
*Net Sales and EBITDA for CY 2015-2018 Ambuja Cements

Figure 9
*Profit Before and After Tax, Ambuja Cement CY 2015-18

Products

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There are multiple products under the brand –

• Ambuja Cement

• Ambuja Roof Special

• Ambuja Cool walls

• Ambuja Compocem – Lightest carbon footprint

• Ambuja Buildcem-Innovative use of fly ash to produce high strength cement

• Ambuja powercem

• Ambuja Railcem-Used for railway sleepers

• Ambuja micro materials

Holdings/Subsidiaries/JV’s
Holdings –
1. Holderind investments Limited
Subsidiaries –
1. M.G.T. Cements Private Limited.
2. Chemical Limes Mundwa Private Limited
3. Dang Cement Industries Private Limited
4. Dirk India Private Limited
5. ACC Limited
Joint Ventures
1. Wardha Vaalley Coal Field Private Limited
2. OneIndia BSC Private Limited

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SWOT Analysis
Strengths
Large capital along with multi-million tonne
production capacity.
Wide distribution network, with strong
dealership
Among the oldest and leading cement
manufacturers in India, so a trusted brand
Opportunities
Being second largest cement producing
nation, India has huge high growth potential
Expenditure on infra expected to increase
Make in India provides for increase in
Manufacturing activities & warehouses
Figure 10
Weakness
Doesn’t have diverse product
range, so potential is limited
Too dependent on Indian market, needs
market expansion
Little or no focus on big projects.
Threats
Strong Competition from Indian and Global
players
Different policies of each country in case of
expansion
Rising cost of input material and logistics
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LITERATURE REVIEW
Valuation using Discounted cash flow method
A projection of the company’s future cash flows is discounted on the Weighted Average Cost of
Capital and represents the intrinsic value of the company. This method is usually the most effort
intensive and also mostly the most accurate representation of the valuation of the company.

For large businesses such as Ambuja Cements the discounted cash flow is calculated as a sum-
of-parts analysis where, valuation of the individual subsidiaries is first calculated and then added
together.

Significance of the Weight Average Cost of Capital

The weighted average cost of capital is used as the preferred discount rate. The Net Present
Value of a firm is the discounted rate of the future cash flows that it can generate. The idea is
that given the NPV to an investor, the sequence of returns the investor would receive as interest
is the cash flows that the firm generate. If a better investment avenue existed for the risk return
trade-off, then the investor would look towards that instead of the firm. Hence WACC is used.

Calculation

WACC is calculated as the proportional costs associated with debt (Wb) and equity (We).
We = (E/V x Re)
Wd = ((D/V x Rd) x (1 – t))

where:
t = tax rate
E = Market value of the firm’s equity
V = Total capital available (debt + equity)
Re = Cost of Equity
Rd = Cost of Debt
D = Market value of the firm’s debt

Thus, WACC = (D/V x Re) + ((E/V x Rd) x (1 – t))

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Calculating the Terminal Value
The DCF method requires all the future cash flows to the firm to be computed and then
discounted to arrive at the Net Present Value for the firm. Since the calculation forever assuming
going concern for a firm is not possible, instead the terminal value is calculated assuming a
progression until ever once a steady state is achieved for the firm. Thus, the terminal value is
calculated based on the projections of the final year for the free cash flow to firm or a proxy
value for the same such as EBITDA.
Given that the terminal value is calculated until perpetuity this may account for more that
close to three fourths of the firm’s total valuation when discounted to the current period.
Therefor it is required that the company is not in any cyclical peaks when the terminal value is
calculated.
There are two main methods that are used for calculating the terminal value.

• Exit multiple method is one in which the exit multiples of comparable companies are
found are then the value for Ambuja Cements can be calculated. This can get affected
by cyclicity of the stock and other external factors and hence is subject to sensitivity.
• The Perpetuity Growth Method treats the companies terminal EBITDA to be growing
at the assuming CAGR forever. The rate is sensitized to produce a valuation range.

Valuation using Market method

Overview
Market approach of valuing an Asset is where the value of an item is calculated relative to the
value or selling price of a similar item. It also accounts for the difference in size, quality and
quantity to paint a relevant picture.
This method can be used to value tangible as well as intangible assets and hence is most common
to value unlisted as well as private companies.
The two market-based valuation approaches are:
1. Guideline transaction method – in this method a private company is valued by keeping
the price a similar company was sold or purchased as the base reference value
2. Guideline public company method – in this method a private or unlisted company is
valued by using the price / value of a listed company of the similar size and in the same
industry.
The valuer must be prudent and verify that the company that is being valued has similar sales
and revenue figures as well as account for economies of scale when comparing to another
company of a different size.

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In the market approach, the comparison to other companies is done on the basis of ratios and
multiples.
The most commonly used ratios-based analysis are:

• Enterprise value-to-EBITDA or EV/EBITDA ratio

This ratio is used as valuation tool to compare value of company, inclusive of debt to
company’s cash earnings minus non-cash earnings. It is perfect to analyze companies
within same industry.
This ratio particularly looks at a company as a possible acquirer as it takes company’s
debt into consideration, which many multiples don’t take into account.

• Price to Sales or P/S ratio

It is the sales revenue earned per share. Mathematically it is market price of the share
divided by the sales per share.
This ratio is favorable because sales numbers are fixed and there is no subjectivity while
accounting them, making it hard to be manipulated as its can be caught easily
Sales are not as fluctuating as earnings because earnings component will include extra
ordinary and other one-time payments and sales can’t be boosted by one-time income
such as asset sales
This ratio can also be used for companies which have negative earnings, that is loss
making companies.
The shortcomings of Price to sales ratio is that the worth of the sales is not known. Sales
may be high but the company might be actually losing money on each sale. This is not
captured in this ratio
Because of the ambiguity surrounding the value of sale, that is how much a unit amount
of sale is worth to the business, this ratio can’t be used to compare various industries. It is
used only when comparing companies of similar industry and profitability level as well
as to analyze one particular company over time

• Price to Book or P/B ratio

Book value is the worth of the firm once when all its liabilities have been paid off. It is
mathematically the difference between the total assets and the total liabilities.
Share holder equity comprises a part of the book value.
Price to Book ratio is the ratio of the market price of the company to the the book value
of the company.

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 Mathematically it is price per share divided by the book value per share
Price to book ratio measure the tangible value of a company better than the earnings
measuring the tangibles of the company and is widely used by conservative investors
The shortcomings of this ratio are:
o The value of assets on a balance sheet might not represent the actual value of the
asset as it won’t have been revalued and doesn’t included charge for a potential
future write-down.
o Book value does not measure the intangible assets like patents.

• Price to earnings or P/E ratio

It is the most popular valuation ratio used. It represents how much an investor is willing
to pay for that business’s earnings.
Price to earnings ratio is the ratio of price of a unit share to the earnings earned by that
one share. Mathematically it’s the ratio of stock price to the earnings per share (EPS)
Earnings are a better representative of the cash flow of a business than the sales and
hence Price to earnings is a better ratio to use than Price to sales
Two types of Price to earnings ratios are used to analyze companies:
o Trailing P/E – the earnings used to calculate the ratio are from the past year
o Forward P/E – the earnings used to calculate the ratio are the projected earnings
the company will have over the next year
The forwards P/E is very subjective as the future earnings being projected are
subject to a lot of assumptions and subjectivity
The higher the P/E ratio of a stock, the more is the value of the company’s earnings,
according to the investors so generally, stocks with high P/E have higher growth
prospects and stocks with low P/E have low growth prospects.
A company which has P/E lower than the industry average in which it operates offers
good value and a company with P/E higher than the industry average presents low value.
The historical P/E ratio of a legacy business is also useful to ascertain the value of the
company
The shortcomings of Price to earnings ratios are:
o Companies can have one-time inflated earnings due to asset sales or change in
accounting methods

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 o Some businesses are cyclical which have a stretch of good business years
followed by a stretch of subdued business years.

• Price to earnings growth or PEG ratio

Price to earnings growth ratio is a metric which captures the future prospect of growth
rate of companies before comparing them. It is a variant of the Price to earnings ratio.
PEG is the ratio of P/E to EPS growth rate. Mathematically Price to earnings growth ratio
is the Forward Price to earnings ratio divided by the projected earnings per share growth
rate over the next 5 years
It is a very subjective ratio because it uses both forward price to earnings ratio as well as
earnings growth rate, both of which are assumptions and subjective
The shortcomings of PEG are:
o It doesn’t capture the risk associated with the growth. Different companies
undertake varied amount of risk to achieve the same growth.
o Firms which generate same growth from lesser capital must be more valuable.
This aspect of lower capital is not accounted by Price to earnings growth ratio
Yield based analysis are advantageous as they can be used to compare alternate investments like
bonds also. This will outline the kind of return that can be expected from each of the
investments. The difference lies in the fact that yield incomes are fixed and earnings income are
variable and hence have a scope for growth

Yield based valuation analysis are:

• Dividend Yield
Dividend yield is the amount of dividend received annually relative to the price of the
share. Dividend Yield is the ratio of annual dividend paid out by the company to the
market price of the stock. Mathematically it is equal to amount of annual dividend
divided by the current market price of the stock.
As the price of a stock increases, the dividend yield decreases and vice versa. It is used
mostly by the income-oriented investors.
A company with high dividend yield might mean that the stock price has become very
low due to some financial problems.

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 • Cash return
Cash flow metric measures the efficiency with which a business is using its capital to
generate free cash flow. The capital part included both equity and debt, i.e. cash return
gives us the amount of free cash flow a business generates as a percentage of how much
money it will cost to buy out the business
It is calculated by the sum of free cash flow and the net interest expense and dividing by
the enterprise value.
Free cash flow is the cash generated from the operations minus the cash spent on capital
expenditures
Enterprise value is the total market capitalization of the company minus the cash
company has on hand plus the long-term debt the company has.
Cash return = (free cash flow + net interest expense) / (enterprise value)
Cash return is especially advantageous in finding cash rich companies (cash cows) which
are trading at reasonable valuations.
The shortcomings of Cash return are:
o It is not relevant for banks and other financial institutions which earn their money
using balance sheet
o Its not accurate to compare companies based in foreign countries as the definition
of free cash flow is different

Industry specific ratios are financial ratios that can be used for valuation in a specific industry
only and unnecessary for other industries. Occupancy rate of hotels is one of such specific ratios.

• Enterprise Value-to-Metric Ton or EV/MT ratio

This is industry specific ratio for Cement industry, used to compare value of company to
Production volume of cements, i.e. how much value is generated for each Million tonne
produced.

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Ambuja Cements - Valuation as per DCF Model
Existing and projected Income Statement

Income Statement Dec-16 Dec-17 Dec-18 Dec-19E Dec-20E Dec-21E Dec-22E Dec-23E

INCOME

Revenue From Operations [Gross] 10,500.84 10,250.43 10,977.00 11,052.25 11,290.33 11,528.41 11,766.49 12,004.57

Less: Excise/Service Tax/Other Levies 1,304.20 -1.18 0 -869.86 -1521.96 -2174.06 -2,826.16 -3478.26

Revenue From Operations [Net] 9,196.64 10,251.61 10,977.00 11,922.11 12,812.29 13,702.47 14,592.65 15,482.83

Other Operating Revenues 0 205.49 379.76 574.8433 764.7233 954.6033 1144.483 1334.363

Total Operating Revenues 9,196.64 10,457.10 11,356.76 12,496.95 13,577.01 14,657.07 15,737.13 16,817.19

Other Income 510.21 359.09 374.98 279.53 211.915 144.3 76.685 9.07

Total Revenue 9,706.85 10,816.19 11,731.74 12,776.48 13,788.93 14,801.37 15,813.82 16,826.26

EXPENSES

Cost Of Materials Consumed 2,608.64 3,142.40 3,562.77 4,058.73 4,535.80 5,012.86 5,489.93 5,966.99

Purchase Of Stock-In Trade 0 0 5.96 7.946667 10.92667 13.90667 16.88667 19.86667

Changes In Inventories Of FG,WIP -30.19 -62.83 -76.72 -103.11 -126.375 -149.64 -172.905 -196.17
And Stock-In Trade

Employee Benefit Expenses 590.93 661.37 679.57 732.5967 776.9167 821.2367 865.5567 909.8767

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Finance Costs 74.24 107.19 82.33 96.01 100.055 104.1 108.145 112.19

Depreciation And Amortisation 848.85 572.92 548.09 355.86 205.48 55.1 -95.28 -245.66
Expenses

Other Expenses 4,336.63 4,777.03 5,294.71 5,760.87 6,239.91 6,718.95 7,197.99 7,677.03

Less: Inter Unit / Segment / Division 1.72 1.01 0.99 0.51 0.145 -0.22 -0.585 -0.95
Transfer

Total Expenses 8,427.38 9,197.07 10,095.72 10,908.40 11,742.57 12,576.74 13,410.91 14,245.08

Profit/Loss Before Exceptional, 1,279.47 1,619.12 1,636.02 1,868.09 2,046.36 2,224.64 2,402.91 2,581.19
ExtraOrdinary Items And Tax

Exceptional Items 0 0 -129 -173 -238 -303 -368 -433

Profit/Loss Before Tax 1,279.47 1,619.12 1,506.07 1,694.82 1,808.12 1,921.42 2,034.72 2,148.02

Tax Expenses-Continued Operations

Current Tax 424.75 412 478 491.5 518.125 544.75 571.375 598

Deferred Tax -88 -18.33 -86.93 -63.35 -62.815 -62.28 -61.745 -61.21

Other Direct Taxes 14.48 0 0 -9.65 -16.89 -24.13 -31.37 -38.61

Tax For Earlier Years -4 -24.12 -372.01 -501.38 -685.39 -869.39 -1053.40 -1237.40

Total Tax Expenses 347.23 369.55 19.06 - - - - -

Profit/Loss After Tax and Before 932.24 1,249.57 1,487.01 1777.71 2,055.10 2,332.48 2609.865 2,887.25
ExtraOrdinary Items

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 Profit/Loss From Continuing 932.24 1,249.57 1,487.01 1777.71 2,055.10 2,332.48 2609.865 2,887.25
Operations

Profit/Loss For The Period 932.24 1,249.57 1,487.01 1777.71 2,055.10 2,332.48 2609.865 2,887.25

Table 2

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Existing and Projected Balance Sheet

Particulars Dec-16 Dec-17 Dec-18 Dec-19E Dec-20E Dec-21E Dec-22E Dec-23E

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 397.13 397.13 397.13 397.13 397.13 397.13 397.13 397.13

Total Share Capital 397.13 397.13 397.13 397.13 397.13 397.13 397.13 397.13

Reserves and Surplus 18,959.74 19,576.08 20,615.40 21,372.73 22,200.56 23,028.39 23,856.22 24,684.05

Total Reserves and Surplus 18,959.74 19,576.08 20,615.40 21,372.73 22,200.56 23,028.39 23,856.22 24,684.05

Total Shareholders’ Funds 19,356.87 19,973.21 21,012.53 21,769.86 22,597.69 23,425.52 24,253.35 25,081.18

NON-CURRENT LIABILITIES

Long Term Borrowings 15.73 24.12 39.68 50.46 62.435 74.41 86.385 98.36

Deferred Tax Liabilities [Net] 497.25 458.36 372.16 317.5 254.955 192.41 129.865 67.32

Other Long Term Liabilities 7.95 8.94 8.35 8.813333 9.013333 9.213333 9.413333 9.613333

Long Term Provisions 43.28 35.23 38.53 34.26333 31.88833 29.51333 27.13833 24.76333

Total Non-Current Liabilities 564.21 526.65 458.72 411.0367 358.2917 305.5467 252.8017 200.0567

CURRENT LIABILITIES

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Trade Payables 815.34 1,046.53 1,109.46 1284.563 1,431.62 1,578.68 1725.743 1,872.80

Other Current Liabilities 2,528.27 2,993.37 2,514.92 2,665.50 2,658.83 2,652.15 2,645.48 2,638.80

Short Term Provisions 88.08 87.08 91.05 91.70667 93.19167 94.67667 96.16167 97.64667

Total Current Liabilities 3,431.69 4,126.98 3,715.43 4,041.77 4,183.64 4,325.51 4,467.38 4,609.25

Total Capital And Liabilities 23,352.77 24,626.84 25,186.68 26,222.67 27,139.63 28,056.58 28,973.54 29,890.49

ASSETS

NON-CURRENT ASSETS

Tangible Assets 5,923.22 5,693.45 5,563.19 5,366.59 5,186.58 5,006.56 4,826.55 4,646.53

Intangible Assets 18.39 28.54 100.41 131.1333 172.1433 213.1533 254.1633 295.1733

Capital Work-In-Progress 320.02 348.48 610.02 716.1733 861.1733 1006.173 1151.173 1296.173

Intangible Assets Under Development 0 49.44 0 16.48 16.48 16.48 16.48 16.48

Fixed Assets 6,261.63 6,119.91 6,273.62 6,230.38 6,236.37 6,242.37 6,248.36 6,254.36

Non-Current Investments 11,844.70 11,844.70 11,813.76 11,803.45 11,787.98 11,772.51 11,757.04 11,741.57

Long Term Loans And Advances 64.94 66.52 60.34 59.33333 57.03333 54.73333 52.43333 50.13333

Other Non-Current Assets 967.81 1,085.53 1,284.02 1428.663 1,586.77 1,744.87 1902.978 2,061.08

Total Non-Current Assets 19,139.08 19,116.66 19,431.74 19,521.82 19,668.15 19,814.48 19,960.81 20,107.14

CURRENT ASSETS

Current Investments 0 0 0 0 0 0 0 0

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Inventories 937.54 1,052.50 1,277.76 1429.487 1,599.60 1,769.71 1939.817 2,109.93

Trade Receivables 395.77 307.97 470.26 465.8233 503.0683 540.3133 577.5583 614.8033

Cash And Cash Equivalents 2,578.52 3,497.07 3,329.97 3,886.64 4,262.36 4,638.09 5,013.81 5,389.54

Short Term Loans And Advances 35.02 30.29 4.29 -7.53 -22.895 -38.26 -53.625 -68.99

Other Current Assets 266.84 622.35 672.66 926.4367 1129.347 1332.257 1535.167 1738.077

Total Current Assets 4,213.63 5,510.18 5,754.94 6,700.89 7,471.55 8,242.20 9,012.86 9,783.51

Total Assets 23,352.77 24,626.84 25,186.68 26,222.67 27,139.63 28,056.58 28,973.54 29,890.49

Table 3

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Calculations for Discounted Cash Flows
Calculations and assumptions:
1. We have assumed that after 2023 Free cash flow to firm will grow at a constant rate of close to GDP of 7%
2. Long term Beta for Ambuja Cements is calculated as 1.41. This is the beta calculated on monthly period over 4 years.
3. WACC is calculated using CAPM method as 19.3% as shown below

Total shareholders’ equity - 21,012.53M

Market value of Long-term debt - 39.68M
Total Capital - 21052.21M
Weight of Debt Capital - 39.68/21052.21 = 0.18%
Weight of Equity Capital - 21,012.53/21052.21 = 99.82%
Beta - 1.41
Risk free rate - 6.36%
Market risk - 14.5%

Cost of Equity - 6.36+ 1.41*(14.5-6.36) = 10.75%

Cost if Debt - 6.2* 0.7 = 4%
WACC - 10.74%

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Terminal Value for Ambuja Cements

EBITn * (1+g)/ (r-g)

Where
EBITn is the Earnings Before Interest and Tax for nth year
g – growth rate
r – WACC

The estimation is as
EBIT - 2,581 M
g - 7 % (Assumed GDP growth)
r - 11.04 %

Terminal Value = 2581 * (1+0.07)/(0.1104-0.07)

Thus the Terminal Value for EBIT is given as 68358.4 crore.

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Calculating the Enterprise Value
Given below are the forecasted EBIT values of the firm

Dec-19E Dec-20E Dec-21E Dec-22E Dec-23E+Terminal Value

1,868.09 2,046.36 2,224.64 2,402.91 2,581.19+68358.4

Table 4
The WACC value is calculated as 11.04%
This the Enterprise Value of the firm is calculated as discounted value of the EBIT cash flows to
the firm at WACC.
EV as of Dec 18 = 48,569.79 crores

Calculating the Implied Equity Value

To derive implied equity value, the company’s net debt, preferred stock, and noncontrolling
interest are subtracted from the calculated enterprise value.

Implied Equity Value = 48,569.79 – (458.72+397)

= 47,714.8 crores

Calculating the Implied Share Price

Derive Implied Share Price For a publicly traded company such as Ambuja Cements, implied
equity value is divided by the company’s fully diluted shares outstanding to calculate an implied
share price.

Implied Share Price = Rs 47,714.8 crore /1,97.565 crore

= Rs. 241

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Valuation using Market method
Valuation of using EV/EBITDA, P/B, P/E and EV/MT ratio
Calculation and assumptions:
1. Leading cement companies operating in the same sector and geography have been
considered and their annual reports are used to calculate industry representing
EV/EBITDA, P/B and P/E Ratios.
2. Median is used as a measure of central tendency to select the ratios.

Competitors Analysis

Company Last Market Book Net Enterprise

Assets Sales EPS EBITDA
Name price Cap value profit value

ACC 1596 29935.17 10527.6 14801.3 560.62 1506.6 80.23 25,288 2183.8

Ramco
775 18285.47 5874.87 5146.27 189.31 505.89 21 18,669 1064.98
Cements

J. K.
978 7,535.20 6,952.32 5258.68 348.78 324.9 45.28 8,283.83 890.03
Cement

Birla
586 4,535.61 7,800.45 6548.73 548.76 137.78 37.18 5,555.24 486.6
Corp

Table 5
Expected market price calculation assuming a 10% margin of error (Sensitivity)

Ratios Price / Book value Price / Earnings EV / EBITDA

ACC 2.84 18.71 11.58

Ramco Cements 4.09 36.15 17.53

J. K. Cement 2.8 23.35 9.30

Birla Corp 0.96 17.74 11.41

Median 2.82 21.03 11.49

Table 6

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Expected Ambuja Cement market price calculation assuming a 10% margin of error (Sensitivity)

Enterprise value based on P/E

Calculated +10% sensitivity -10% sensitivity

Industry ratio 21.03 23.13 18.93

EPS 11.5 11.5 11.5

Estimated price 241.85 266.03 217.66

Table 7

Share price is estimated to be between 218-266 Rs per share based on P/E method of valuation

Expected Ambuja Cement market price calculation assuming a 10% margin of error (Sensitivity)

Enterprise value based on P/B

Calculated +10% sensitivity -10% sensitivity

Industry ratio 2.82 3.102 2.538

Book value 105.82 105.82 105.82

Estimated price 298.41 328.25 268.57

Table 8

Share price is estimated to be between 268-328 Rs per share based on P/B method of valuation

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Expected Ambuja Cement market price calculation assuming a 10% margin of error (Sensitivity)

Enterprise value based on EV/EBITDA

Calculated +10% sensitivity -10% sensitivity

Industry ratio 11.49 12.64 10.34

EBITDA 4230.28 4230.28 4230.28

Enterprise value 48640.69 53504.76 43776.62

Debt 458.72 458.72 458.72

Non-current
11,813.76 11,813.76 11,813.76
investments

Cash 3,329.97 3,329.97 3,329.97

Market
capitalization 63,325.70 68,189.77 58,461.63

No of shares 197.50 197.50 197.50

Estimated price 320.63 345.25 296.00

Table 9

Share price is estimated to be between 296-345 Rs per share based on EV/EBITDA method of
valuation

Production Capacity of Major Firms in Million Tonnes

Company Name Production (MT) EV/MT

ACC 20.1 1258
Ramco Cements 13.8 1352
J. K. Cement 9.60 862
Birla Corp 6.05 918
Median 1060
Table 10

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 Enterprise value based on EV/MT

Calculated +10% sensitivity -10% sensitivity

Industry ratio 1060 1166 954

Production (MT) 24.1 24.1 24.1

Enterprise value 25.546 28,100.6 22,991.4

ACC Value Added 13,514 13,514 13,514

Debt 458.72 458.72 458.72

Non-current
11,813.76 11,813.76 11,813.76
investments

Cash 3,329.97 3,329.97 3,329.97

Market
capitalization 53,741 56,295 51,186

No of shares 197.50 197.50 197.50

Estimated price 272.8 285.7 259.8

Table 11
Share price is estimated to be between 260-285 Rs per share based on EV/MT method of
valuation

The average share price using market-based valuation method is 261-306

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Valuation using Analyst reports method

Arihant ICICI HDFC Nalanda Average

Revenues 11,780 12,151 11,988 12,301 12,055

Expenses 9,718 9,824 9,935 9,934 9,853

EBITDA 2,062 2,327 2,053 2,367 2,202

PAT 1,454 1,502 1,324 1,364 1,411

EV/EBITDA 19.4 18.0 18.8 18.0 18.6

RoE 6.8 9.7 5.9 6.2 7.2

P/E 30.0 29.2 33.1 31.7 31.0

*Predictive Figures for CY 2019E
Table 12

Arihant ICICI HDFC Nalanda Average

Revenues 12,368 12,965 13,231 12,921 12,871

Expenses 10,080 10,344 10,971 10,428 10,456

EBITDA 2,288 2,621 2,260 2,493 2,416

PAT 1,565 1,622 1,401 1,453 1,510

EV/EBITDA 17.2 16.0 13.7 16.5 15.9

RoE 7.2 10.7 6.3 6.3 7.6

P/E 27.9 27.1 31.3 29.8 29.0

*Predictive Figures for CY 2020E
Table 13

Arihant ICICI HDFC Nalanda Average

Price 232 225 223 239 230
*Price Estimate
Table 14

Average share price predicted by analysts is Rs 230.

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RESULTS AND ANALYSIS
The current valuation of Ambuja cements by the market is Rs 216
The valuation we have ascertained

• Using Market based method is in the range of Rs 260-313

• Using Discounted cash flow method is Rs 241
• Using analyst calls and broker reports is in the range of Rs 223-239
The overall average valuation as ascertained by us is 252.5
The higher value of valuation obtained by using all the valuation methods compared to the
current market valuation indicates that Ambuja Cements is currently undervalued and represents
a good value proposition for an investor to invest in.

Page | 38
REFERENCES

• https://www.ibef.org/industry/cement-india.aspx
• https://www.indianmirror.com/indian-industries/cement.html
• https://www.statista.com/statistics/267364/world-cement-production-by-country/
• https://www.forbes.com/sites/niallmccarthy/2018/07/06/china-produces-more-cement-
than-the-rest-of-the-world-combined-infographic/#29a9198a6881
• https://www.safalniveshak.com/industry-analysis-cement-part2/
• https://www.equitymaster.com/research-it/sector-info/cement/Cement-Sector-Analysis-
Report.asp
• https://www.ibef.org/news/ultratech-cement-gets-green-nod-for-rs-2500-cr-project-in-ap
• https://www.cmaindia.org/cement-industry/demand-drivers/
• www.ambujacement.com/Sustainability/Sustainable-Development-Ambition-2030
• www.ambujacement.com
• www.thehindubusinessline.com/markets
• www.moneycontrol.com
• www.content.icicidirect.com
• www.nalandasecurities.com
• www.hdfcsec.com

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