Ultratech Cement - Motilal Oswal · Ultratech Cement 29 May 2015 3 Strategically ahead Prepped for impending upturn; 4x scale-up potential in EBITDA by FY20 Better preparedness for

Strategically ahead

Ultratech Cement

Detailed Report | 29 May 2015

Sector: Cement

Jinesh Gandhi ([email protected]); +91 22 3982 5416

Sandipan Pal ([email protected]); +91 22 3982 5436

Ultratech Cement

29 May 2015 2

Contents

Strategically ahead ....................................................................................................... 3

UTCEM to garner superior growth cycle benefits ....................................................... 4

Inheritance renders unique option value .................................................................. 10

Profitability edge improving ...................................................................................... 19

Deserves expansion in valuation premium ............................................................... 23

Story in charts ............................................................................................................. 29

Financials and valuations ........................................................................................... 31

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

http://www.motilaloswal.com/Institutional-Equities�

Ultratech Cement

29 May 2015 3

Strategically ahead Prepped for impending upturn; 4x scale-up potential in EBITDA by FY20

Better preparedness for growth (18% capacity share and ~70% utilization), leadership across regions and synergies from inorganic ventures should enable UTCEM to maximize benefits of the impending cement industry upturn.

Potential consolidation of BK Birla cement assets offers significant option value. Accretion could be INR300-400/share, if concluded at win-win valuations.

Consistent cost management efforts have boosted profit levers. EBITDA is at inflection point and could scale up 4x by FY20. From FY17-18, UTCEM would have sufficient operating surplus to support 8-10% annual growth on perpetual basis.

UTCEM deserves to trade at higher multiples and command greater premium to peers. Buy with potential 2x returns over the next 3-4 years.

UTCEM to garner superior growth cycle benefits: We believe the demand recovery potential in cement is delayed, not obliterated. UTCEM is best placed to garner benefits of an upturn, with (a) ~18% capacity market share, (b) high utilization levers and brand leadership across regions, and (c) critical assets like land and limestone mines in place for future growth. UTCEM’s inorganic ventures were strategic and prudently addressed weak links ahead of the demand recovery phase. Its ‘mission 100m tons’ by 2020 appears achievable, given its high preparedness.

Inheritance renders unique option value: The BK Birla group’s cement assets (Century, Kesoram and Mangalam) are likely to be consolidated with UTCEM eventually. If the asset transfer happens at win-win valuations, it would result in meaningful option value for UTCEM – (a) greater scale and market share in key regions, and (b) pricing and cost synergies. The consolidation could add option value of ~INR300-400/share. Space for value accretion is wide enough.

Profitability edge improving: UTCEM is consistently focusing on internal cost management and extracting synergies from its prudent acquisitions. 40-50% of its annual capex is towards improving efficiency. EBITDA is at inflection point and could scale up 2x by FY17 and 4x by FY20. From FY17-18, UTCEM would have sufficient operating surplus to perpetually support 8-10% annual growth.

Deserves expansion in valuation premium: Sector valuations are a reflection of the low earnings phase. With strong recovery foreseeable, any valuation discomfort is only transient. Being bigger and better prepared for the impending upturn, we believe UTCEM deserves to trade at higher multiples and command greater premium to peers. We set 1-year forward target price at INR3,500/share (upside of 20%), valuing at USD230/ton (50% premium to replacement cost). UTCEM’s stock could double in the next 3-4 years on the back of likely quadrupling of EBITDA by FY20. UTCEM offers the best medium-term scale-up visibility among large cap cement companies. We reiterate UTCEM as our preferred large cap pick.

BSE Sensex S&P CNX

27,828 8,434

Stock Info

Bloomberg UTCEM IN

Equity Shares (m) 274.4

52-Week Range (INR) 3399/2300

1, 6, 12 Rel. Per (%) 9/21/11

M.Cap. (INR b) 800.1

M.Cap. (USD b) 12.9

AvgVal. INRm/Vol‘000 842/314

Free float (%) 38.3

Financial Snapshot (INR b) Y/E March 2015 2016E 2017E Net Sales 226.6 255.5 320.5

EBITDA 39.2 50.4 73.3

Adj EPS (INR) 73.4 90.3 134.9

Gr (%) -2.8 23.0 49.4

RoE (%) 11.2 12.4 16.4

RoCE (%) 14.1 15.3 19.1

P/E (x) 39.7 32.3 21.6

P/BV (x) 4.2 3.8 3.3

EV/EBITDA (x) 20.2 16.4 11.7

EV/ton (USD) 204 200 192

Shareholding pattern (%)

As on Mar-15 Dec-14 Mar-14

Promoter 61.7 61.7 61.7

DII 5.9 5.9 4.9

FII 21.1 21.3 22.7 Others 11.4 11.2 10.6 FII Includes depository receipts

Stock Performance (1-year)

2,2002,4502,7002,9503,2003,450

May

-14

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4

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14

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-14

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15

Mar

-15

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UltraTech Cem.Sensex - Rebased

Detailed Report | Sector: Cement

Ultratech Cement CMP: INR2,916 TP: INR3,500 (+20%) Buy

Ultratech Cement

29 May 2015 4

UTCEM to garner superior growth cycle benefits Consistently created growth levers | Strengthening market positioning

We believe the demand recovery potential in cement is delayed, not obliterated. We estimate industry growth of ~5% in FY16, and 8-10% CAGR over FY17-19.

UTCEM is best placed to garner benefits of an upturn, with (a) ~18% capacity market share, (b) high utilization levers and brand leadership across regions, and (c) critical assets like land and limestone mines in place.

UTCEM’s inorganic ventures were strategic and prudently addressed weak links ahead of the demand recovery phase.

Its ‘mission 100m tons’ by 2020 appears achievable, given its high preparedness.

Cement demand recovery delayed, not obliterated Cement demand, which is in a trough, is poised for gradual recovery. After prolonged sub-normalcy with CAGR of 4.5% over FY10-15 (long-term average: ~8%), we expect the industry to enter a multi-year high growth phase. This would be driven by revival in spending on infrastructure projects, improvement in macroeconomic factors, and resurrection of the investment cycle. There have been early signs of improvement in project completion and new additions. However, the pace of recovery has been slower than anticipated due to (a) stretched balance sheets of private players, (b) approval systems taking longer time to improve, and (c) many state governments facing funding constraints. Additionally, near-term outlook of the rural economy, which has been contributing to demand in the last 2-3 years, has weakened significantly due to adverse monsoon and no increase in minimum support prices (MSP) for key crops. This resulted in unusual slowdown in industry volumes in 4QFY15 and subdued visibility for the next 5-6 months. We have cut our growth estimate for FY16 from ~7% to ~5%, with possible recovery in 2H, and expect 8-10% growth period to defer to FY17-19.

Exhibit 1: Signs of improvement in project completion (INR t)

Source: CMIE, MOSL

Exhibit 2: …and new project addition (INR t)

Source: CMIE, MOSL

1.0 1.2 1.9 2.4 3.0 3.9 3.4 4.2 3.6 1.7 2.4

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

9MFY

15

0

5

10

15

20

25

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

9MFY

15Projects added Projects dropped

Growth avenues are intact with high backlog from prolonged down-cycle

Macro hurdles are acting as impediments, with

slowdown in rural economy an added concern

Ultratech Cement

29 May 2015 5

Exhibit 3: While there is pick-up in fresh LOI, on-ground order awarding is delayed (INR b)

Source: Industry

Exhibit 4: Weakness in rural economy an additional impediment to cement demand

Source: IIP, MOSL

Union Budget 2015 rightly formulated the essentiality of government spending as the key ignition criterion for a revival in the investment cycle. After a lull of two years, infrastructure project awards are looking up, as the new government decided to shift to EPC mode, considering muted interest in the BOT/PPP mode (due to stressed financials of private players). Budgetary support for roads was increased by 59% to INR400b, while the allocation for NHAI was raised 96% to INR294b (versus INR150b as per RE 2015). Among others, fall in crude price and coal block auction should give the government better financial leeway to boost public investments.

Exhibit 5: Demand-supply dynamics directionally favorable

Million tonnes FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Capacity (Year end) 154 158 166 189 215 272 304 320 344 365 384 405 411 429 Growth (%) 5 2 5 14 14 27 12 5 8 6 5 6 1 4 Cement Dispatches 125 142 155 168 181 200 210 225 237 240 252 264 285 313 Volume Growth (%) 7 13 9 8 8 10 5 7 6 1 5 5 8 10 Capacity Util (%) 86 92 95 90 86 75 70 71 70 67 66 66 70 74 Effective Cap. (Qly add-up) 146 150 158 181 210 242 282 307 329 346 367 391 403 414 Effective Cap. Util. (%) 90 97 100 94 88 84 75 74 73 70 69 68 71 76 Adj. Util - clinker based (%) 78 83 87 91 91 89 83 85 84 78 76 77 82 87

Source: Company, MOSL

0

400

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1,600

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LOI Tenders Invited Orders given

6.2

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4.7

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3.9 4.3

4.2

3.7 4.

3

4.0

3.9

3.8

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3.4 4.

0 4.9

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Growth TTM (%)

Under new government, while there is a clear

improvement in projects added (LoI), on-the-ground

order awards are yet to take off

Trailing 12-month growth moderates due to sharp de-

growth in March-15 led by adversity in rural economy

Government efforts are in the right direction to ignite

broad pick-up in investment cycle

Ultratech Cement

29 May 2015 6

UTCEM better-placed; has created assets ahead of competition UTCEM is the only cement company in India apart from Shree Cement to have created meaningful growth levers without stretching its balance sheet. It has strengthened its leadership in all regions, with systematic expansion through both organic and inorganic means. It has smartly made up for any regional gap in market share through timely acquisitions (Jaypee’s MP plant in Central India). Based on its visible expansion plan, UTCEM’s capacity is likely to grow to 71m tons by FY16, with the commencement of grinding units in East and North India (West Bengal, Bihar and Haryana) and inclusion of Jaypee’s 5m ton MP plants (Bela and Sidhi). Exhibit 6: UTCEM’s capacity has expanded by ~45% since FY12 (m tons)


Exhibit 7: Expansion offers healthy utilization levers


Exhibit 8: Created capacity faster than peers (m tons)


Utilization levers in place across regions UTCEM is now by far the largest cement company in India, with 71m tons of domestic capacity, implying ~18% of India’s capacity market share. Its capacities are well-spread across 15 integrated plants and 16 grinding units. UTCEM enjoys 15-30% market share across all five regions. It is the number-1 capacity holder in the South and West, and number-2 in the North and East (after Holcim-Lafarge), which helps it to command significant brand premium. Growth levers remain high owing to its systematic capacity addition. FY15 volume as a percentage of FY16 capacity was 60-70% in North, South and East India, and 75-80% in West and Central India. Both its recent acquisitions create growth headroom in under-capacity regions. While Jaypee’s Gujarat plant (FY13) improved utilization lever in the West from near-100% pre-acquisition to ~75% now, the MP plants would improve utilization lever in

49 49 49 49 51 54 62 71

23

3

55

5

18

1615 15 15

16

18 17

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Opening Cap Organic Inorganic Capacity market share (%)

Used downcycle to create capacity

20.2

34.7

34.7

40.7

40.7

41.5

44.8

48.4

56.9

88

71 71

8480

7773 73

80

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Dispatches (MT) Cap. Util (%)

31

20 16

6

49

31 27

14

71

32 3024

UTCEM ACC ACEM SRCM

FY07 FY12 FY16

Systematic capacity addition led to 3pp gain in capacity share for UTCEM

since FY13

FY15 volume as a percentage of FY16 capacity was 60-70% in North, South and East India, and 75-80%

in West and Central India

Ultratech Cement

29 May 2015 7

Central India from ~95% to ~80%. Also, post the South (Karnataka) and the East (Chhattisgarh), UTCEM is executing its next leg of organic expansions in the North. Exhibit 9: UTCEM’s market share in different regions (%)

#Figures in circle indicates the numbers of players in region Source: Company, MOSL

Exhibit 10: Capacity mix – well diversified regionally (%)


Exhibit 11: Utilization (tentative) aids growth headroom


Exhibit 12: UTCEM has high utilization lever compared to peers (%)

72

79

74 74

67

7674

67

63

76

72

67

Ultratech ACC Ambuja Shree

FY15 FY16E FY17E


Inorganic ventures prudently aimed at bridging weak links Both its recent acquisitions (1) 4.8m ton Jaypee’s Gujarat plants (September 2103), and (2) 4.9m ton Jaypee’s MP plants (December 2014), were of strategic importance and addressed the weak links in its regional penetration.

1518

30

19 1815

19

29

20

12

North East West Central South

FY14 Market share (Volume) FY16E Market share (Capacity)

16 14 14 2811

23 20

26 24

2626

14 16

11 15

FY14 FY16E

Central East West South North

58 6275 68

80

North South West East Central

UTCEM is number-1 in South and West India, and

number-2 in East and North India in terms of capacity

Calculated as FY15 volume as % of corresponding

years’ projected capacity

Tentative existing utilization (%) of UTCEM at various regions

Ultratech Cement

29 May 2015 8

Acquisition of Jaypee’s Gujarat assets The acquisition of Jaypee’s 4.8m ton Gujarat plants (implied EV of USD124/ton) gave UTCEM access to 5,479 hectares of land and 500m tons of limestone reserves. This would help it to double existing capacity, with sufficient infrastructure like captive power capacity to support entire production, DWT barges, and bag manufacturing unit. The assets comprise of (1) an integrated cement unit at Sewagram (Kutch, Gujarat), with 2.4m tons of cement and 3.6m tons of clinker capacity, and (2) a 2.4m ton grinding unit at Wanakbori (central Gujarat). These are located about 350km from UTCEM’s plant at Pipavav. The complementary locations of UTCEM’s plants (South Gujarat) and Jaypee’s Gujarat plants (West and Central Gujarat) would trigger volume synergies (barring logistics savings) and augment reach, with coastal movement to distant markets like Mumbai, Kochi, Mangalore and Sri Lanka.

Exhibit 13: UTCEM’s acquisition of Jaypee’s Gujarat plants


Exhibit 14: UTCEM’s acquisition of Jaypee’s MP plants


Acquisition of Jaypee’s MP assets UTCEM has entered into MoU to acquire Jaypee’s MP plants, with clinker capacity of 5.2m tons, grinding capacity of 4.9m tons, and captive power capacity of ~180MW. Based on reported capacity, implied EV/ton would be ~USD171. However, given the clinker capacity of 5.2m tons, small investments can take producible capacity to ~7m tons, based on which implied EV/ton would be ~USD135. The assets comprise two cement plants in MP (a) 2.6m tons at Bela (2.1m tons clinker; 25MW CPP), and (b) 2.3m tons at Sidhi (3.1m ton clinker; 155MW power plant). UTCEM can augment grinding capacity by a further 2-2.5m tons with excess clinker at Sidhi. UTCEM had weak presence in Central India, which accounted for ~8% of its capacity and 10-12% of its volumes. With this acquisition, its capacity share in Central India would increase from ~11% to ~20%. Volume contribution from Central India would go up to 15-18%. Most importantly, UTCEM’s existing plants (exhibit 13) are located more towards West MP and South Chhattisgarh and Orissa, >500km away from North-Central MP and Eastern UP. The Jaypee plants would augment market reach meaningfully.

Jaypee acquisition was at complimentary location in

Gujarat adding huge limestone reserve

Acquisition in MP offers much needed boost to

relatively lower presence in central India

Ultratech Cement

29 May 2015 9

Emphasis on core assets – land and limestone reserves UTCEM has accumulated strong limestone reserves, with average plants having 35-40 years of reserves. It acquired Jaypee’s Gujarat plants also with the intent to gain access to large limestone reserves (500m tons; > 90 years), which give it the ability to double present capacity. UTCEM is consistently adding land and limestone reserves, the two most crucial resources for sustainability (20-25% of annual capex). The company has multiple limestone MoUs in place in Andhra Pradesh, MP. Chhattisgarh, Rajasthan etc. Longer than industry average mining life give UTCEM an edge over peers. Possible auction of limestone going forward could inflate raw material cost for the industry. Exhibit 15: As a share of capex, UTCEM’s investments in land are higher than peers (FY14)


Exhibit 16: Key limestone environment clearances received in past 3-4 years

Year EC Granted Location/ State Area (Ha) MTPA Mining life Reserve

2014 Jan-14 Chhattisgarh 997 4.2

-

2014 Jan-14 Madhya Pradesh 564 2.0 29 58

2014 Jan-14 Rajasthan 755 3.3

-

2012 Aug-12 Madhya Pradesh 564 6.3

-

2009 Jun-09 Andhra Pradesh 91 1.3 35 46

Source: Industry, MOSL

Mission 100m tons by 2020 achievable Consistently focused on market share, UTCEM aims at reaching 100m tons of capacity by FY20 through both organic and inorganic means. The next leg of organic expansion would be announced depending on regional demand recovery prospects. Headroom for inorganic ventures also exists. In the backdrop of rising challenges and cost of accumulating land and limestone (MMDR act on possible auction of limestone mines), setting up of integrated plants within desired timeline would be a function of preparedness. UTCEM’s existing asset base offers significant edge over peers in terms of growing capacity base. It can add 20-25m tons of integrated plants at 4-5 locations, with its current land and limestone reserves.

19.6

11.2

0.8

16.9

8.7

23.0

9.26.7

Ultra Tech Cement Shree Cement ACC Ambuja

Land as % of capex Capex as % of gross block

Focus on acquiring key resources is attributable to de-risking future growth in

advance

We anticipate most of these MoUs offer fresh capacity

announcement scope going ahead

UTCEM can add 20-25m tons of integrated plants at

4-5 locations, with its current land and limestone

reserves

Ultratech Cement

29 May 2015 10

Inheritance renders unique option value Benefits of scale, synergies and exclusivity, if valuation is win-win

BK Birla group’s cement assets are likely to be eventually consolidated with UTCEM. Among the benefits of the consolidation would be (a) greater scale and market share

in key regions, and (b) pricing and cost synergies. Consolidation of Century at ~USD130/ton would add 5-6% to our target price for

UTCEM and 6-8% to its FY17-18 EPS assuming synergy benefits (though in the initial year, it would be ~4% EPS dilutive).

Together with Kesoram and Mangalam, the consolidation could add option value of ~INR300-400/share (8-10%). Space for win-win valuation is wide enough.

BK Birla group cement assets likely to be consolidated with UTCEM Mr BK Birla’s stake in group companies, as per family will, would gradually be bequeathed to his descendants. While there is no official clarity on the timeline for consolidation of cement entities within the larger Birla family, the process would eventually transfer key group cement divisions of Century Textiles (12.8m tons) to Mr Kumar Mangalam Birla. While Mangalam Cement (3.25m tons) could go to Mr BK Birla’s daughter, Ms Manjushree Khaitan, as per media articles, this entity along with cement division of Kesoram (7.25m tons), may eventually get consolidated with UTCEM, as well. Exhibit 17: BK Birla group cement assets of ~23m tons capacity (promoters’ stake)


Consolidation buzzes high amidst certain corporate actions Recent media reports have been vocal on potential consolidation of Century’s cement unit with UTCEM being near conclusion. Corporate actions have been in showing similar signs as well. Post his induction to the board of Century Textiles in 2006, Mr Kumar Mangalam Birla has been increasing his stake in the company. Warrant issue (May 2014) to promoters would increase his stake in the holding firm, Pilani Investments (which has 37% stake in Century Textiles) to ~51% by November 2015. Promoter stake in Kesoram has also increased from ~27% to ~48% post rights issue in FY14. Transfer of Laskar tyre manufacturing units (Uttarakhand) to a subsidiary in April 2015 can be viewed as a step towards gradual hive-off of cement units to UTCEM.

BK Birla Group

Direct holding

Century (12.8mt)

Kesoram (7.25mt)

Mangalam (3.25mt)

KM Birla GrasimUltratech

(71mt)

Promoters’ stake in Century and Kesoram went up on warrants and rights issue

Basant Kumar Birla

Manjushree Khaitan

Aditya Vikram Birla

Kumar Mangalam Birla

Ultratech, Hindalco,

Grasim, Idea

Cement: Kesoram, Century Textiles

Mangalam Cement

45.2%

47.9%

27.4%

25.5% 61.7%

Ultratech Cement

29 May 2015 11

Exhibit 18: Promoters’ stake in BK Birla group cement ventures

Century Kesoram Mangalam Grasim Ultratech

Ultratech (effective)

Mar-13 40.23 27.12 27.41 25.51 61.69 15.74

Mar-15 45.22 48.06 27.41 25.51 61.69 15.74


Group assets to offer wide degree of synergies Among the benefits of consolidation would be (a) greater scale and market share in select regions, provided there are no major hurdles in CCI approvals, and (b) pricing (brand premium) and cost (logistics, operating efficiencies, fixed cost) synergies. Assuming no significant CCI intervention (and no divestment required) in such consolidation, it would place UTCEM among top 10 global players (top 5 ex China). Our assumption is subjective and based on recent instances which got CCI clearances with post deal market shares almost similar to what above combination would result into viz. post divestment market share of Holcim-Lafarge in east, UTCEM’s acquisition of JPA in Gujarat etc. Exhibit 19: Leading cement capacity across globe (m tons)


Benefits of scale and market mix The Indian cement sector is passing through a phase of consolidation, with top 10 players likely to hold ~75% capacity share by FY17. UTCEM is at the forefront of such consolidation. Together with group cement assets of ~23m tons (Century, Kesoram and Mangalam), UTCEM’s capacity would reach ~97m tons (among the top 7 global cement companies). UTCEM’s capacity would be almost 1.5x the combined post-merger capacity of Holcim India (ACC-Ambuja) and Lafarge, and 3x the capacity of the next largest individual player (ACC/Ambuja). Consolidation would enrich the market share of the combined entity, especially in key states like Rajasthan (with Mangalam), MP and Chhattisgarh (with Century and recent Jaypee plant), Karnataka and Maharashtra (with Kesoram and Century). Capacity market share of the combined entity in these select regions would be 25-40%, rendering meaningful volume synergies and pricing power.

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Ultratech Cement

29 May 2015 12

Exhibit 20: Combined entity to enrich capacity mix (%)…


Exhibit 21: …with volume inching up in east and west (%)


Exhibit 22: Key states where consolidation would result in meaningful market share gain

Industry UTCEM CENT Kesoram Mangalam Combined UTCEM MS (%)

Combined MS (%)

Rajasthan 64.8 11.1

3.3 14.3 17.0 22.0 HAR/PUN/HP 26.5 3.0

3.0 11.0 11.0

North

11.1 - - 3.3 14.3 12.0 16.0 MP 35.8 7.9 4.5

12.4 22.0 35.0

UP 17.1 2.6

2.6 15.0 15.0 Central 52.9 10.5 4.5 - - 15.0 20.0 28.0 AP

4.5

1.5

6.0 8.0 10.0 Karnataka 35.6 5.4

5.8

11.2 15.0 31.0

TN 36.4 5.6

5.6 15.0 15.0 South 142.3 15.5 - 7.3 - 22.8 11.0 16.0 Chhattisgarh

6.0 2.1

8.1 25.0 33.0 WB/ORS/BIH 36.3 5.3

5.3 15.0 15.0

East 60.7 11.3 2.1 - - 13.4 19.0 22.0 Gujarat

11.8

11.8 40.0 40.0 Maharashtra 26.0 7.3 4.7

12.0 28.0 46.0

West 61.9 19.1 4.7 - - 23.8 31.0 39.0 Total 409.0 67.5 11.3 7.3 3.3 89.4 17.0 22.0


Volume synergies inevitable, provided no CCI intervention We expect natural volume synergies in the combined entity in the key states of Maharashtra, Karnataka, Central-East India (MP-Chhattisgarh) and Rajasthan. The combined capacity may lead to increase in volume market share in select regions meaningfully, raising concerns of CCI intervention. While CCI intervention is a subjective matter, we look at instances where consolidation would raise state-level market share above 30%. MP-Chhattisgarh (UTCEM and Century) and Karnataka-Maharashtra (UTCEM, Kesoram and Century) are key regions. South and West regions: In Maharashtra (demand of 27-28m tons), the combined entity would have 12m tons of capacity (7.3m tons of UTCEM’s Chandrapur and Hotgi, and 4.7m tons of Century’s Manikgarh), implying ~45% capacity market share. When seen in terms of volume market share, this coupled with Kesoram’s 5.75m ton Sedam plant and UTCEM’s 3.2m ton Malkhed (North Karnataka) plant would place the combined entity among the largest volume plays in Maharashtra (at par or higher than Holcim’s share of 24-25%).

20

100

18

16

2816

26 37 24

15

35

16

24

100

26

UTCEM Century Kesoram Mangalam Combined


17

60

15

1629

16

28 32

40

29

1737

20

4021

2240

19



Consolidation will enrich market share in states like

Rajasthan, MP and Chhattisgarh, Karnataka and

Maharashtra

Consolidation would aid volume synergies in South-

West India and North-Central India

Ultratech Cement

29 May 2015 13

Similarly, the combined entity’s capacity share would increase to ~30% (versus ~15% for UTCEM now) in Karnataka (demand: 15-16m tons), with UTCEM’s Tadipatri (5.6m tons) and Malkhed (3.2m tons), and Kesoram’s Sedam and Ramagundam (1.5m tons) plants. North, Central and East regions: The combined entity (with Century) would have 12.4m ton capacity, which would take its capacity market share in MP (demand: 13-14m tons) to 35% (versus 22% for UTCEM). Additional dispatches from Rajasthan (to West MP) and North Karnataka (to southern parts of MP) may increase volume share significantly to ~25%. In Rajasthan (demand: 17-18m tons), we see potential volume synergies, with better market reach – attributable to logistics rationalization among UTCEM’s Kotputli, North Rajasthan (3.1m tons) and Shambhupra (5m tons) plants, and Mangalam’s Morak, East Rajasthan (3.35m tons) plant. Exhibit 23: Group assets: Scope for volume and logistics rationalization


Consolidated entity would have 30-45% capacity

market share in the state of Maharashtra and Karnataka

Ultratech Cement

29 May 2015 14

Profitability to rise as pricing and cost synergies percolates Like most tier-II brands, Century’s Birla Gold, Kesoram’s Birla Shakti and Vasavadatta and Mangalam’s Birla Uttam sell at prices INR15-25/bag lower than tier-I brands like Ultratech’s Birla Super and Ultratech Premium. Consolidation would create headroom for realizations growth for combined enity, translating into higher profitability of INR200-300/ton. In addition to volume synergies (as illustrated above), brand improvement may also result in incremental demand. Cost synergies would emerge from rationalization of (a) logistics, (b) fixed cost and (c) some scope of improvement in energy efficiencies. Logistics optimization would result into lower lead distances, clinker and cement swap, and in turn, reduction in freight cost: (a) UTCEM and Mangalam plants in Rajasthan and West-Central MP markets (b) UTCEM and Century’s MP plants (c) Kesoram and Century plants (more towards South-Central Maharashtra, North

Karnataka and MP) and UTCEM’s AP/Karnataka plant (more towards South India)

Further, savings on fixed cost by optimization of facility management, economies of scale in administration and other support operations, and improvement in operating parameters for these companies under UTCEM management would be additional benefits. While group entities are reasonably efficient in terms of energy consumption (exhibit 24/25), with greater focus on pure cement business and under the leadership of UTCEM management, we expect any existing sub-normalcy to be addressed.

Exhibit 24: Power efficiency of group entities (KwH/ton)


Exhibit 25: Comparative energy cost/ton (FY14, INR)


Consolidation of Century’s cement assets seems on near-term radar Century Textiles (CENT), BK Birla group’s flagship, is a diversified company with presence in cement, textiles, paper & pulp, and chemicals. Based on recent media articles, consolidation of Century’s cement assets with UTCEM is approaching the conclusion stage, with an indicative valuation of ~INR105b (implied EV of USD130/ton) – 30-40% premium to our midcap universe average valuation (EV/ton).

81

95

7175

8179

94

75 7376

Ultratech Mangalam -Unit I

Mangalam -Unit II

Kesoram Century

2012-13 2013-14

1160

1272

991

1101

UTCEM Century Kesoram Mangalam

Consolidation would offer headroom for higher

realizations and direct translation into higher

profitability of INR200-300/ton

Logistics rationalization would trigger meaningful

benefits among complementary plants

Media article hints at potential consolidation of

Century with UTCEM at USD130/ton

Ultratech Cement

29 May 2015 15

Key asset dynamics Capacity and growth levers: Century has 12.8m tons of cement capacity (post

Maharashtra and West Bengal expansion in FY14). New expansion revived growth headroom, with utilization down from 95%+ (pre-acquisitions) to 78%.

Market mix: Volume mix is distributed – West, Central and East India account for 30-35% each. Century is among the leaders in Central India, with 8% share.

Pricing power: Century’s cement realization has historically been INR15-20/bag lower than tier-I brands.

Operating efficiencies: At power efficiency of ~75KWH/ton of cement and fuel efficiency of 10.5% of cement production, Century boasts of reasonably efficient parameters. It owns 115MW of CPP, which addresses almost 75% of its power requirement. Freight cost dynamics are a bit sub-optimal, with higher lead distance (450-500km). The average age of Century’s cement plants is 24 years; these vintage plants have comparatively higher maintenance cost.

Exhibit 26: Overview of Century’s cement assets

INR m FY13 FY14 FY15 FY16E FY17E FY18E Operating parameters

Capacity (mt) 9.3 10.0 12.8 12.8 12.8 12.8 Volume (mt) 7.7 8.2 10.3 10.9 11.7 12.7 Growth (%) 7 27 5 8 8 Utilization (%) 82 81 85 92 99 Revenue (INR m) 30,201 31,017 38,500 43,356 55,105 64,496

Realization (INR/ton) 3,947 3,798 3,723 3,993 4,700 5,093

Cost (INR /ton) 3,368 3,408 3,424 3,561 3,603 3,783 Change (%) 1 0 4 4 5

EBITDA (INR m) 4,434 3,185 3,100 4,700 12,858 16,588 EBITDA (INR/ton) 580 390 300 433 1,097 1,310 UTCEM EBITDA (INR/ton) 1,005 751 764 974 1,235 1,479 Synergies assumed (INR/ton) Price increase for UTCEM

406 393

Realization uptick on brand premium 300

Cost saving benefits 100 Depreciation 813 1,000 1,000 1,000


Assuming an all-equity deal (as indicated in recent media articles have hinted) and no transfer of Century’s debt to UTCEM, we estimate new share issue of almost 37m (12% dilution). Assuming further improvement of INR15/bag (INR300/ton) in realizations (due to UTCEM brand) and INR100/ton of cost synergies in FY17, we estimate 5-7% EPS accretion in FY17/18 (~3% EPS dilution in FY16). An all-cash deal would drive ~6% EPS accretion in FY17.

Century’s recent expansion in Maharashtra offers good

utilization lever

Ultratech Cement

29 May 2015 16

Exhibit 27: All-equity deal: near-term earnings dilutive; synergies to drive EPS accretion eventually (continue from Exhibit 26)

INR m FY16E FY17E FY18E PBT 3,700 11,858 15,588 UTCEM's PBT pre-deal 37,568 54,197 79,528 UTCEM's PBT post-deal 41,267 66,055 95,116 Change in PBT (%) 9.8 21.9 19.6 Tax 12,380 18,495 27,584 Post deal PAT 28,887 47,560 67,533 UTCEM's EPS pre-deal 96 142 206 EPS post-deal 93 153 217 Change in EPS (%) -3.1 7.6 5.6


Exhibit 28: All cash deal: Similar dynamics, with higher earnings impact due to interest cost

INR m FY16E FY17E FY18E Interest 8,769 8,769 8,769 Interest cost (%) 8.5 8.5 8.5 PBT -5,070 3,089 6,819 UTCEM's PBT pre-deal 37,568 54,197 79,528 UTCEM's PBT post-deal 32,498 57,286 86,347 Change in PBT (%) -13.5 5.7 8.6 Tax 9,749 16,040 25,041 UTCEM's EPS pre-deal 96 142 206 EPS post-deal 83 150 223 Change in EPS (%) -13.5 5.7 8.6


Exhibit 29: We estimate value accretion of ~INR200/sh (~6%) on Century’s consolidation

Target EV/ton 230 210 190 170 All Cash deal Accretion to EV 182,528 166,656 150,784 134,912 Addition to Net Debt 103,168 103,168 103,168 103,168 Net addition of Eq Value 79,360 63,488 47,616 31,744 Net addition of Eq Value (INR/sh) 289 231 174 116 All Equity deal New share issue (m) 36 36 36 36 Pre-deal Equity share (m) 274 274 274 274 Post-deal Equity share (m) 311 311 311 311 Accretion to EV (INR m) 182,528 166,656 150,784 134,912 UTCEM target Eq value 960,773 960,773 960,773 960,773 Post deal Eq value (INR m) 1,155,446 1,139,574 1,123,702 1,107,830 Post deal Eq value (INR/sh) 3,721 3,669 3,618 3,567 Pre deal Eq value (INR/sh) 3502 3502 3502 3502 Net addition of Eq Value (INR/sh) 219 168 116 65


With higher promoters stake in Century (versus

UTCEM), the likelihood of all-equity deal is more

At USD130/ton of acquisition cost, Century

would add INR200/share if assets are valued at par

with UTCEM

Ultratech Cement

29 May 2015 17

Exhibit 30: Promoter family stake in UTCEM would increase in case of all-equity merger


Headroom in place for win-win valuation Since promoters hold higher stake in Century (versus UTCEM), we believe an all-equity deal is more likely. While consolidation of Century would lead to multiple operational benefits, whether minority shareholders gain would depend on the valuation of the transaction. Media-indicated EV of USD130/ton is at (a) 20-25% premium to midcap peers, (b) in line with recent transactions of similar profile, and (c) ~30% discount to UTCEM valuation. It offers a reasonably wide space for win-win valuation for both UTCEM and Century shareholders. We estimate 5-6% accretion (~INR200/share) in UTCEM target price. Other assets should follow similar trend Logical consolidation of other BK Birla cement assets in Kesoram and Mangalam could extend similar synergistic benefits for UTCEM. Our base case assumption (at USD130/ton of acquisition cost and all equity routes) highlights consolidation of all group cement entities to ascribe INR300-400/share to UTCEM (8-10%). Exhibit 31: Overview of Kesoram’s cement assets INR m FY13 FY14 FY15 FY16E FY17E FY18E Operating parameters

Capacity (mt) 7.3 7.3 7.3 7.3 7.3 7.3 Volume (mt) 5.2 5.0 5.0 5.2 5.6 6.1 Growth (%) 5 -3 0 4 8.0 8.0 Utilization (%) 69 69 72 78 84

Revenue (INR m) 21,410 19,615 19,500 21,688 27,402 31,988

Realization (INR/ton) 4,150 3,911 3,888 4,158 4,864 5,257 Cost (INR /ton) 3,309 3,358 3,288 3,370 3,438 3,610 Change (%) 1 -2 3 5 5 EBITDA (INR m) 4,340 2,770 3,150 3,989 5,463 7,063 EBITDA (INR/ton) 841 552 600 765 970 1,161 UTCEM EBITDA (INR/ton) 1,005 751 764 974 1,235 1,479


62%

16%

60%

20%

Pre-deal promoters' stake (%)

Pre-deal promoters family stake (%)

Post-deal promoters' stake (%)

Post-deal promoters family stake (%)

In case of an all-equity deal, promoters’ family would have 6% direct holding in UTCEM and 14% holding

through Grasim against a total of 16% now

Kesoram, with 7.3m tons of assets and 70% utilization,

offers potential synergies in South and West operations

Ultratech Cement

29 May 2015 18

Exhibit 32: Overview of Mangalam’s cement assets INR m FY13 FY14 FY15E FY16E FY17E FY18E Operating parameters

Capacity (mt) 2.0 3.3 3.3 3.3 3.3 3.3 Volume (mt) 1.8 1.8 2.2 2.3 2.5 2.7 Growth (%) 13 -2 22 5 8.0 8.0 Utilization (%) 92 55 68 71 77 83

Revenue (INR m) 7,060 6,973 9,031 10,106 12,676 14,750

Realization (INR/ton) 3,835 3,883 4,105 4,375 5,081 5,474 Cost (INR /ton) 3,126 3,572 3,730 3,805 3,945 4,142 Change (%) 14 4 2 5 5 EBITDA (INR m) 1,306 557 825 1,318 2,835 3,590 EBITDA (INR/ton) 710 310 375 570 1,136 1,332 UTCEM EBITDA (INR/ton) 1,005 751 764 974 1,235 1,479


Exhibit 33: Value accretion (INR/sh) to UTCEM at various acquisition cost of BK Birla assets

Acquisition cost

EV/ton USD

Target multiple (EV/ton USD)

329 170 190 210 230 250

100 255 344 433 522 611

110 198 285 373 460 548

120 142 228 314 400 486

130 87 172 257 342 427

140 35 118 202 286 369

150 -16 66 148 231 313

Source: Company, MOSL Exhibit 34: Combined dynamics on consolidation of Century, Kesoram and Mangalam

INR m FY17E FY18E Operating parameters

Capacity (mt) 23.3 23.3 Volume (mt) 20.0 21.6 Growth (%) 8 8 Utilization (%) 86 93 EBITDA (INR m) 21,208 27,343 EBITDA (INR/ton) 1,062 1,267 Depreciation 2473 2473 All Equity deal PBT Contribution 18,690 24,788 UTCEM's PBT pre-deal 54,197 79,528 UTCEM's PBT post-deal 72,887 104,316 Change in PBT (%) 34.5 31.2 Tax 20,408 30,252 Post deal PAT 52,479 74,065 UTCEM's EPS pre-deal 142 206 EPS post-deal 154 218 Change in EPS (%) 8.5 5.8


Though media articles indicate that Mangalam Cement could go to Ms

Manjushree Khaitan, there is a possibility of it being

consolidated with UTCEM

Our base case assumption highlights consolidation of

group entities to ascribe INR300-400/share

Ultratech Cement

29 May 2015 19

Profitability edge improving EBITDA to scale-up 2x by FY17, 4x by FY20

UTCEM is consistently focusing on internal cost management and extracting synergies from its prudent acquisitions. 40-50% of its annual capex is towards improving efficiency factors.

EBITDA is at inflection point and could scale up 2x by FY17 and 4x by FY20. From FY17-18, UTCEM would have sufficient operating surplus to support 8-10%

annual growth on perpetual basis.

Consistently building up edge on efficiencies UTCEM enjoys pricing premium similar to tier-I brands and a superior cost structure. Its grey cement EBITDA/ton is ~10% higher than Ambuja Cement’s. Presence in white cement boosts its overall profitability further. 40-50% of UTCEM’s annual capex (as on FY15) is non-expansion related matters (examples: modernization, logistics, energy efficiencies, land). Its investments in cost savings measures would aid sustainability of cost advantages: Rise in sea transport to 8% from 3% currently by doubling jetty capacity at

Gujarat plant Increase in usage of alternate fuel from 2-3% to 6% Increase in waste heat recovery system (WHRS) usage to 5-6% of power

requirement from 1-2% currently Consistent upgradation and modernization of plants, leading to steady

improvement in operating parameters

Exhibit 35: Profitability to ride on price growth and cost efficiencies


Exhibit 36: UTCEM emerged as profit leader among pan India peers


Rising mix of CPP, WHRS and pet coke UTCEM has improved pet coke consumption to ~50% of fuel mix, helping it to achieve higher cost savings. Barring its acquired assets (from JPA), all other plants are approaching targeted ~70% pet coke mix. It is improving vertical integration on captive power (CPP) from 80% towards maximum. Its total CPP capacity including waste heat recovery (WHRS) stands at 733MW, which caters to ~80% of power requirement. Acquisition of Jaypee’s MP plant will increase CPP capacity by 180MW, which along with ongoing expansion in WHRS at various locations by ~45MW would take CPP capacity to 958MW (theoretically near maximum of total production requirement). Captive power is ~25% cheaper than purchased power.

939

981

730 97

0

1090

859

861

1026 12

75

26.7 28.0

19.4 22.0 22.518.0 17.3

19.722.9

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

EBITDA/ton Margin (%)

500

700

900

1100

1300

FY11 FY12 FY13 FY14 FY15 FY16 FY17

UTCEM ACEM SRCM ACC

40-50% of UTCEM’s annual capex (as on FY15) is non-expansion related matters

Total CPP capacity caters to ~80% of power

requirement, pet coke approaching 70% mix target

Blended EBITDA/ton (including white cement) Grey cement EBITDA/ton (INR)

Ultratech Cement

29 May 2015 20

Additionally, UTCEM is prioritizing on WHRS, with expansion of 45MW (versus existing capacity of 37.5MW at Chhattisgarh, Karnataka and AP plants) to 82.5MW. Currently, WHRS accounts for 1-2% of mix (versus ~30% for Shree Cement). WHRS offers savings per unit of INR3-3.5/unit (over purchased power) versus INR1-1.5/unit for thermal power. Increase in WHRS usage to 5-6% by FY16 and ~10% thereafter of power requirement (v/s 1-2% currently) should lead to INR10-15/ton savings on total EBITDA.

Exhibit 37: Changing logistics mix…


Exhibit 38: …and fuel mix to lower costs


Exhibit 39: Comparative pure cement EBITDA margins (%)


Tailwinds ahead from better logistics rationalization… Increase in the share of road transport from 61% in FY12 to 67% in FY15 has benefited UTCEM during the phase of softening diesel prices. The company would be increasing the share of sea transport to 8% from 3% currently by doubling jetty capacity at Gujarat plant, which would enable further savings on western region logistics. Upcoming bulk terminals in Pune and Mumbai (Mumbai Port Trust has allotted land to UTCEM for setting up terminal) would render further predictability to transport dynamics in the region. For dispatches from Gujarat, UTCEM uses JNPT to access the Mumbai market. As JNPT is congested, shipments are often delayed. Similarly, upcoming cement grinding units in the East (1.6m tons each in West Bengal and Bihar by FY16-end), and the North (Haryana by mid-FY16) would enable further optimization in logistics by reducing lead distance and widening market reach. Benefits of freight rationalization is also expected from its acquired (Jaypee plants in MP and Gujarat) or potential inheritance of group assets.

36% 34% 34% 26% 28% 29%

61% 63% 62% 70% 68% 67%

3% 3% 3% 4% 4% 4%

FY12 FY13 FY14 3QFY15 4QFY15 FY15

Rail Road Sea

44% 35% 26%51%

64%

26%

26% 38% 48%

29%19%

52%

30% 27% 26% 20% 17% 22%

FY12 FY13 FY14 3QFY15 4QFY15 FY15

Imported coal Pet Coke Indigenous Coal and others

18

24

19 18

24

2726

1719

22

FY06 FY13 FY14 FY15 FY17E

Ultratech Ambuja

Period of narrowing margin gap with Ambuja

UTCEM to enjoy better margins hereonwardsUTCEM has started enjoying

a superior margin owing to focus on improving

efficiencies during down-cycle

Upcoming bulk terminals in Pune and Mumbai would

render further predictability to transport dynamics in the

region

Ultratech Cement

29 May 2015 21

…and synergies from inorganic ventures Scale-up in utilization in Gujarat acquisition (from Jaypee) from <50% to 85-90% coupled with access to new coastal markets with new terminals would lead to benefits of positive operating leverage. Pricing synergies would emerge from (a) brand premium of INR200-300/ton for Jaypee production, (b) market consolidation, with over 30% market share (~49% capacity share) for UTCEM aiding pricing power, and (c) better trade: non-trade mix. On the cost side, it would offer freight synergies, led by cement/clinker swap and market realignment (INR350m-400m savings from market realignment alone – Refer exhibit 13). Energy usage for the existing plant is higher at 103.6Kcal/ton of clinker (versus industry average of 80-90Kcal/ton due to (1) higher alkali content in the limestone, and (2) weak utilization. Under UTCEM management, this should improve with increase in utilization and various operating measures. The transaction also offers tax savings on carry forward loss of INR3.5b (according to the management). Similarly, we expect inherited assets of BK Birla group offers potential logistics synergies in each of the operation regions. We attempt to highlight likely reduction in lead distance in east and north if Century and Mangalam assets get consolidated.

Exhibit 40: Potential eastern market synergies


Exhibit 41: Potential northern market synergies


EBITDA at inflection point; could multiply 2x by FY17, 4x by FY20 With strong growth headroom ahead, UTCEM is well poised to post 2x scale-up in EBITDA over FY15-17. Of the incremental EBITDA, ~50% is likely to be derived from (a) volume growth (12-13% CAGR) led by ~25% expansion over FY14-17, and (b) moderation in cost inflation, various efficiency measures and synergistic benefits. We factor in realization CAGR of 7.5% over FY15-17 (v/s 6% in FY14-15) on improved demand from 2HFY16. Further, the consolidation of all BK Birla assets and incremental organic expansion, which may drive capacity to 100m tons by FY20 (as targeted by management), would potentially quadruple UTCEM’s EBITDA over the next five years.

UTCEM expects INR350m-400m savings from market realignment from Gujarat

acquisition of JPA

Existing route

Potential route

Dispatch market

550km

575km

150km

JPA acquisitions offer better logistics for east

UP & Bihar markets than existing

Existing route Dispatch market

Potential route

150km

100km

60km

New grinding unit at Jhajjar offers better logistic for Delhi

market and released bandwidth for other grinding

units for northern states

Ultratech Cement

29 May 2015 22

Exhibit 42: UTCEM could record 4x scale-up in EBITDA over next five years (INR b)


FCF can support self-sustaining growth capital In our base case scenario of ~12% volume CAGR, 7% realization CAGR and 3-4% cost CAGR over FY15-18, UTCEM would generate ~INR180b of operating cash flow (OCF) over FY16-18 (20-25% of current market capitalization). Ongoing expansions (in the North and the East) and acquisition of Jaypee’s MP assets are likely to be concluded in FY16-17. We estimate FCF yield of ~8% in FY18. We estimate OCF for FY16-20 (~INR400b) to be ~2.5x the past five years’ cash flow generation run-rate. Despite assumption of ~1.5x scale-up in capex compared to last five years (other than potential consolidation of group entities which may come through equity route), we estimate almost ~15x scale-up in FCF in FY16-20 (v/s past 5 years). Assuming potential consolidation of BK Birla assets through equity issuance route in FY17-18, UTCEM could generate INR50b-60b of surplus annual FCFE from FY18. UTCEM’s target of 8-10% annual capacity expansion over the medium-term would require investments of a similar quantum (INR50b-60b per annum). UTCEM would record net DER of 0.6x post the conclusion of Jaypee’s MP acquisition by 2HFY16. We estimate FY17 net debt at INR89b (0.37x) versus the management’s comfort level of 0.75x. Healthy financial levers offer significant headroom for inorganic opportunities. Exhibit 43: Healthy operating cash flow offers support to growth plan (INR b)


39 1015 9 73

40 8

50 171

FY15

EBI

TDA

Volu

me

grow

th

Real

izat

ion

grow

th

Cost

m

oder

atio

n

FY17

E EB

ITD

A

Volu

me

impa

ct

Syne

rgy

impa

ct

Prof

itabi

lity

grow

th

FY20

E EB

ITD

A

35 46 4261

781755

47

75

66 7 8 9 9

11 -17-13

-23

63

FY14 FY15E FY16E FY17E FY18E

OCF Growth capex Maintenance capex FCF

100m tons by FY20 could quadruple over the next

five years

We estimate almost 15x growth in FCF in FY16-20 over past 5 years – most

benefits from FY18

Based on added

capacity

Better pricing from

2HFY16

Cost saving measures

Adding group assets

Price & profit

synergies

7-8% Pricing CAGR

Ultratech Cement

29 May 2015 23

Deserves expansion in valuation premium Foresee 2x returns over next 3-4 years

Sector valuations are a reflection of the low earnings phase. With strong recovery foreseeable, any valuation discomfort is transient.

Being bigger and better prepared for the impending upturn, we believe UTCEM deserves to trade at higher multiples and command greater premium to peers.

Current valuations factor in sub-normal volume and pricing assumptions. We value UTCEM at USD230/ton at INR3,500 (upside of xx%). Recent correction offers

a good entry point, with potential 2x returns over the next 3-4 years.

Strong recovery foreseeable; valuation discomfort transient There has been a case of valuation discomfort for large cap cement stocks, which have shown ahead of the curve re-rating compared to weak on-ground demand dynamics. Assuming FY17 as the first year of demand normalcy (8-10% growth), we consider the current phase as the beginning of the up-cycle – similar to FY03-04. In connection to that, the prevailing large cap valuations (EV/EBITDA) of 10-11x FY17E (15-18x FY16E) appear higher than the 10-11x (1-year forward) in FY03-04. Exhibit 44: Cement large caps trading at historical high multiples (1-year fwd EV/EBITDA)


During FY03-04 and the subsequent up-cycle of FY05-10, industry utilization was at 85-100% as against ~75% clinker utilization now and ~80% (estimated) by FY17, which is the likely to be the first year of demand upswing. Despite this decade-low utilization and the longest phase of volume downturn, RoEs and margins have shown resilience at ~14% and ~17% respectively for large cap players (exhibit 45 and 46). These bolster a case for operating margins to be superior to previous cycle with moderation in cost inflation ahead. We believe the implied high valuations are due to suppressed earnings, which are at inflection point and likely to return to growth trajectory by late FY16. We appreciate that prevailing weak dynamics – delay in government project recovery, adversity in rural economy, etc – could inhibit immediate re-rating, as volume growth and price power would remain subdued. Yet, the correction in cement stock prices in the last couple of months has eased off valuation dichotomy.

0

5

10

15

20

25

Aug-

04

Mar

-05

Oct

-05

May

-06

Dec

-06

Jul-0

7

Mar

-08

Oct

-08

May

-09

Dec

-09

Jul-1

0

Feb-

11

Sep-

11

Apr-

12

Nov

-12

Jun-

13

Jan-

14

Aug-

14

Mar

-15

LargeCap Maximum EV/EBITDAHigh EV/EBITDA multiple is attributable to prolonged

suppressed earnings

Despite multi- year’s slowdown, the

margins/RoEs are strong and offer headroom to

expand

Ultratech Cement

29 May 2015 24

Exhibit 45: Industry RoE at trough with utilization at bottom of the cycle

Source: Company, MOSLMOSL

Exhibit 46: Margin resilience in downturn shows companies better placed for up-cycle


The large cap EV/ton resembles mid-cycle valuations (while RoEs are of early cycle). However we expect strong headroom for profitability aids further scope for re-rating. In the peak of FY05-08, asset valuation reached 50-100% premium to replacement cost. This was led by (a) expansion in RoE, and (b) significant M&A premium. While current cycle may not get the M&A premium as high as past, a better profitability and RoE expansion may partially compensate for the same. Prevailing large cap valuations, at 20-25% premium to replacement cost, may see re-rating ahead. Exhibit 47: EV/ton at premium to replacement cost (%) against RoE (%)

-4.5 5.7 10.8 13.4 17.6 26.1 48.8 42.7 30.4 27.0 19.2 20.3 20.5 14.0 13.3 13.6 17.1

8682

87 89 9097

10094

88

8475 74 73 70 69 68

71

91 8983 85 84

78 76 7782

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15EFY16EFY17E

RoE (%) Utilization (%) Clinker Utilization (%) RHS

17.9 16.9 18.7 19.1

29.0 29.324.6 27.6

19.9 20.5 22.617.2 16.5 19.1

22.8

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E

RoEs have shown good resilience against the

magnitude of the slowdown

Margins, too, mimic the dynamics of beginning of

up-cycle in FY03-04

Current EV of 20-25% premium to replacement

cost lower than 50-100% in last upturn; scope for

further re-rating intact

Ultratech Cement

29 May 2015 25

Bigger and better – UTCEM deserves shift in valuation orbit UTCEM trades at FY17E EV/EBITDA of 11.7x and EV/ton of USD190. This is against a historical average EV/EBITDA of 8x and beginning of up-cycle EV/EBITDA of 10-11x. UTCEM deserves premium valuation compared to its historical benchmark due to (a) significant boost in size and profitability over time, and (b) better preparedness to aid outperformance. Historically, in terms of EV/ton, UTCEM has traded at 20-25% discount to Ambuja Cement, which was the most profitable cement player in the last cycle. With growing edge on scale, profitability and earnings CAGR, the dynamics started reversing with UTCEM commanding premium valuation since FY13. With headroom for outperformance, we expect the premium to enhance further.

Exhibit 48: UTCEM enjoying premium valuations-EV/ton USD


Exhibit 49: Trend in EV/EBITDA – 1 year forward (x)


Exhibit 50: EBITDA margin (%)

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

UTCEM 16.8 28.9 31.3 26.7 28.0 19.4 22.0 22.5 18.0 17.3 19.7 22.9 Ambuja 27.2 37.4 36.3 28.4 26.4 24.7 22.8 25.5 17.0 18.8 17.7 21.1 Premium on Ambuja -10.4 -8.5 -5.0 -1.7 1.6 -5.3 -0.8 -3.0 1.0 -1.5 2.0 1.8 EBTIDA/ton (INR/ton)

UTCEM 384 827 1006 939 981 730 970 1090 859 861 1026 1275 Ambuja 599 1112 1220 991 993 896 904 1122 717 840 793 1029 Premium on Ambuja -36% -26% -18% -5% -1% -19% 7% -3% 20% 3% 29% 24%


Exhibit 51: UTCEM to outperform on revenue growth (%)

Revenue EBITDA PAT CAGR (%) FY06-10 FY10-15 FY15-17 FY06-10 FY10-15 FY15-17 FY06-10 FY10-15 FY15-17 UTCEM 21 26 19 37 15 37 48 13 36 ACC 26 7 9 47 -13 36 51 -12 32 Ambuja 23 7 7 22 0 13 21 2 13 Shree 53 11 26 62 -4 51 158 -13 105


0

50

100

150

200

250

300

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Apr-

13

Apr-

14

Apr-

15ACEM UltraTech

0

6

12

18

24

Aug-

04

Aug-

05

Aug-

06

Aug-

07

Aug-

08

Aug-

09

Aug-

10

Aug-

11

Aug-

12

Aug-

13

Aug-

14

ACEM UltraTech

Average discount of

20-25%

Average premium of 5-10%

Ultratech Cement

29 May 2015 26

“Unrelated yet relevant” cases of disproportionate valuation re-rating We present a couple of instances of valuation re-rating. The first instance is of BHEL, which received higher investor preference as a proxy for the power business than direct play power generation companies (NTPC, TATA Power). This led BHEL to enjoy strong valuation premium during 2007-08, also justified by its higher RoE. Based on similar logic, with various investor concerns pertaining to real estate and infrastructure, cement may see richer valuations than in the past as a proxy play to the construction growth cycle.

Exhibit 52: P/E – BHEL versus power generators


Exhibit 53: P/B – BHEL versus power generators


Exhibit 54: RoE – BHEL versus power generators


The second instance is of two large caps from the IT sector – TCS and Infosys. TCS’ valuation multiple reversed trend and it started enjoying a premium over Infosys from FY11, led by stronger earnings growth.

0

12

24

36

48

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

BHEL NTPC Tata Power

0

3

6

9

12

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

BHEL NTPC Tata Power

0

8

16

24

32

FY 0

3

FY 0

4

FY 0

5

FY 0

6

FY 0

7

FY 0

8

FY 0

9

FY 1

0

FY 1

1

FY 1

2

FY13

FY14

FY15

FY16

FY17

BHEL NTPC TATA POWR

Ultratech Cement

29 May 2015 27

Exhibit 55: TCS versus Infosys – various operating and financial parameters

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 USD revenue growth (%)

TCS 25.6 45.8 37.0 5.5 5.4 29.1 24.2 13.7 16.2 15.0 INFO 35.2 43.6 35.1 11.7 3.0 25.7 15.8 5.8 11.5 5.6

EBITDA margin (%)

TCS 29.4 28.8 27.8 25.8 28.9 30.0 29.5 28.7 30.7 28.8 INFO 32.5 31.6 31.4 33.2 34.6 32.6 31.8 28.6 27.2 27.9

1-year forward PE (x)

TCS 22.7 24.1 15.4 7.7 17.6 21.8 16.4 16.1 19.2 20.3 INFO 22.8 25.4 13.9 12.3 21.9 22.2 17.6 15.5 15.2 19.7

TCS premium on INFO on->

Revenue growth (%) -27% 5% 5% -53% 80% 13% 54% 138% 41% 168% Margins (pp) -3.1 -2.8 -3.6 -7.4 -5.7 -2.6 -2.3 0.1 3.5 0.9 PE multiple (%) 0% -5% 11% -37% -20% -2% -7% 4% 26% 3%


Preferred large cap pick; what target valuations factoring in? UTCEM is our preferred pick among large cap cement players. We set 1-year forward target price for UTCEM at INR3,500/share (upside of 20%), valued at USD230/ton (50% premium to replacement cost). This implies EV/EBITDA of 14x on back of assumptions of a) volume CAGR of 12% (including Jaypee’s MP acquisitions), and (b) realization CAGR of 7% over FY15-17. We are not yet factoring in option value owing to potential consolidation of BK Birla group cement assets, which could eventually add INR300-400/share. Prevailing market price factors in realization CAGR of 4.5-5% (at our volume assumption of 12% CAGR) or volume CAGR of 0% (at our pricing assumption of 7% CAGR) over FY15-17. These, albeit, captures the likely recovery ahead, we believe the magnitude of recovery for UTCEM could positively surprise, with added cushion of scalability.

Exhibit 56: Sensitivity of UTCEM’s target price to cement prices and volumes (INR/sh)

Realization CAGR

(FY15-16)

Volume CAGR

2.5% 4.0% 5.5% 7.0% 8.5% 10.0%

0.0% 2011 2338 2665 2992 3319 3646 4.0% 2077 2424 2772 3119 3467 3815 7.0% 2143 2511 2879 3247 3615 3983

10.0% 2209 2598 2986 3374 3763 4151 12.0% 2276 2684 3093 3502 3911 4319 15.0% 2342 2771 3200 3629 4059 4488


UTCEM could deliver ~2x return in 3-4 years Considering UTCEM’s scale benefit over the next 4-5 years (including BK Birla group asset consolidation) and much awaited favorable industry dynamics (capacity addition to remain muted till FY18), we attempt to forecast its earnings potential over the medium term. It highlights potential scale-up in UTCEM’s EBIDTA by 4x by FY20 with reasonably greater certainty. At target EV/EBITDA multiple of 10x (implied EV/ton of USD276), UTCEM offers strong potential for a 1.9-2x return over next 3-4 years. UTCEM offers the best medium-term scale-up visibility among large cap cement companies. We reiterate UTCEM as our preferred large cap pick.

TCS’s valuation multiple reversed trend and started

enjoying premium to Infosys from FY11 on

stronger earnings growth

UTCEM’s current price factors in realization CAGR

of 4.5-5% (at our volume assumption of 12% CAGR) or volume CAGR of 0% (at our pricing assumption of 7.5% CAGR) over FY15-17

With multiple avenues in place, UTCEM has better

scale-up visibility over peers

Ultratech Cement

29 May 2015 28

Exhibit 57: UTCEM’s cash flow based on organic growth and inherited assets UTCEM FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E Capacity (mt) 49 49 51 54 62 66 71 94 100 100 Volume (mt) 35 41 41 42 45 49 58 85 91 95 Utilization (%) 72 85 81 78 74 74 81 91 90 95 Growth (%) 18 0 2 8 8 17 49 6 5

EBITDA (INR b) 25.6 40.0 44.9 36.2 39.2 50.4 73.3 123 146 171 EBITDA (INR/ton) 730 970 1090 859 861 1026 1275 1438 1610 1803 Growth (%) 33 12 -21 0 19 18 19 12 12 EBITDA margin (%) 22 23 24 19 18 21 24 27 29 30

PBT (INR b) 18 33 38 28 29 35 51 101 122 145 Tax (INR b) 4 9 12 7 9 11 14 29 35 42 PAT (INR b) 14 24 26 20 20 25 37 72 86 103

Source: Company, MOSL Exhibit 58: At 10x EV/EBITDA, we expect UTCEM to offer ~2x return in 3-4 years EV/EBITDA (x) 10 EV (INR b) 1714 EV/ton (USD) 276 Debt (INR b) -105 Equity (INR b) 1820 Value/share (INR) 5348 Return over next 3-4 years 1.9


Ultratech Cement

29 May 2015 29

Story in charts

Exhibit 59: UTCEM has used down-cycle to build capacity (mt)


Exhibit 60: UTCEM’s market share in different regions (%)


Exhibit 61: High utilization lever in all regions (%)


Exhibit 62: Key limestone MoUs in place for future growth

Year EC Granted Location/

State

Area

(Ha)

MTPA

2014 Jan-14 Chhattisgarh 997 4.2

2014 Jan-14 Madhya Pradesh 564 2.0

2014 Jan-14 Rajasthan 755 3.3

2012 Aug-12 Madhya Pradesh 564 6.3

2009 Jun-09 Andhra Pradesh 91 1.3


Exhibit 63: BK Birla assets (promoter’s stake) (%)


Exhibit 64: Combined entity to enrich capacity mix (%)


49 49 49 49 51 54 62 71

23

3

55

5

18

1615 15 15

16

18 17

FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Opening CapOrganicInorganicCapacity market share (%)

1518

30

19 1815

19

29

20

12


FY14 Market share (Volume) FY16E Market share (Capacity)

16 14 14 2811

58 6275 68

80

North South West East Central

BK Birla Group

Direct

holding

Century (12.8mt)

Kesoram (7.25mt)

Mangalam (3.25mt)

KM Birla Grasim Ultratech (71mt)

20

100

18

16

2816

26 37 24

15

35

16

24

100

26



Tentative existing utilization (%) of UTCEM at various regions

45.2%

47.9%

27.4%

25.5% 61.7%

Ultratech Cement

29 May 2015 30

Story in charts

Exhibit 65: Consolidation of BK Birla group assets may aid INR300-400/share to UTCEM

Acquisition

cost

EV/ton

USD

Target multiple (EV/ton USD)

329 170 190 210 230 250

100 255 344 433 522 611

110 198 285 373 460 548

120 142 228 314 400 486

130 87 172 257 342 427

140 35 118 202 286 369

150 -16 66 148 231 313 Source: Company, MOSL

Exhibit 66: UTCEM emerged as profit leader among pan India peers


Exhibit 67: UTCEM could record 4x scale up in EBITDA over next 5 years (INR b)


Exhibit 68: Significant scale-up in operating cash flow offers support to growth plans (INR b)


Exhibit 69: UTCEM started enjoying premium asset valuations compared to Ambuja unlike past cycle – (EV/ton USD)


Exhibit 70: At 10x EV/EBITDA, we expect UTCEM to offer ~2x return in 3-4 years UTCEM FY16E FY17E FY18E FY19E FY20E

Capacity (mt) 66 71 94 100 100

Volume (mt) 49 58 85 91 95

Utilization (%) 74 81 91 90 95

EBITDA (INR b) 50.4 73.3 123 146 171

EBITDA (INR/ton) 1026 1275 1438 1610 1803

Margin (%) 21.0 24.0 27.0 29.0 30.0

EV/EBITDA (x)

10

EV (INR b)

1714

EV/ton (USD)(USD)

276

Debt (INR b)

-105

Equity (INR b)

1820

Value/share (INR)

5348

Return over next 3-4 years

1.9


500

700

900

1100

1300

FY11 FY12 FY13 FY14 FY15 FY16 FY17

UTCEM ACEM SRCM ACC

39 1015 9 73

40 8

50 171

FY15

EBI

TDA

Volu

me

grow

th

Real

izat

ion

grow

th

Cost

m

oder

atio

n

FY17

E EB

ITD

A

Volu

me

impa

ct

Syne

rgy

impa

ct

Prof

itabi

lity

grow

th

FY20

E EB

ITD

A

35 46 4261

781755

47

75

66 7 8 9 9

11 -17-13

-23

63

FY14 FY15E FY16E FY17E FY18E

OCF Growth capex Maintenance capex FCF

0

50

100

150

200

250

300

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

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Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Apr-

13

Apr-

14

Apr-

15

ACEM UltraTech

Average discount of

20-25%

Average premium of 5-10%

Grey cement EBITDA/ton (INR)

Ultratech Cement

29 May 2015 31

Financials and valuations

Income Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Net Sales 132,062 181,664 199,991 200,779 226,565 255,542 320,547 381,585 Change (%) 87.3 37.6 10.1 0.4 12.8 12.8 25.4 19.0 Total Expenditure 106,465 141,625 155,045 164,619 187,411 205,181 247,215 284,983

% of Sales 80.6 78.0 77.5 82.0 82.7 80.3 77.1 74.7 EBITDA 25,597 40,039 44,946 36,160 39,153 50,360 73,333 96,602 Margin (%) 19.4 22.0 22.5 18.0 17.3 19.7 22.9 25.3 Depreciation 7,657 9,026 9,454 10,523 11,331 14,026 18,373 19,053 EBIT 17,939 31,013 35,492 25,637 27,822 36,334 54,960 77,548 Int. and Finance Charges 2,725 2,239 2,097 3,192 5,475 5,946 9,551 9,367 Other Income - Rec. 2,619 4,568 4,620 5,310 6,515 5,000 6,000 8,000 PBT 17,833 33,343 38,015 27,755 28,863 35,388 51,408 76,181 EO Expense/(Income) 0 -666 0 -956 0 0 0 0 PBT after EO expense 17,833 34,009 38,015 28,711 28,863 35,388 51,408 76,181 Tax 3,791 9,467 11,700 7,266 8,715 10,616 14,394 22,093 Tax Rate (%) 21.3 27.8 30.8 25.3 30.2 30.0 28.0 29.0 Reported PAT 14,042 24,542 26,315 21,445 20,147 24,771 37,014 54,089 Adj PAT 14,042 24,062 26,315 20,731 20,147 24,771 37,014 54,089 Change (%) 28.4 71.4 9.4 -21.2 -2.8 23.0 49.4 46.1 Margin (%) 10.6 13.2 13.2 10.3 8.9 9.7 11.5 14.2

Balance Sheet (INR Million) Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Equity Share Capital 2,740 2,741 2,742 2,742 2,744 2,744 2,744 2,744 Reserves 103,920 125,858 149,606 168,233 185,833 206,943 239,175 287,685 Net Worth 106,660 128,598 152,348 170,975 188,576 209,687 241,919 290,429

Deferred liabilities 17301 17378 19059 22958 27920 29689 31489 34917

Secured Loan 26,373 41,529 54,085 51,993 74,142 69,142 118,142 113,142 Unsecured Laon

Loans 26,373 41,529 54,085 51,993 74,142 69,142 118,142 113,142 Capital Employed 150,334 187,505 225,493 245,927 290,638 308,518 391,549 438,487 Goodwill

29,000 29,000

Gross Block 179,423 190,138 213,822 250,778 325,662 375,662 423,162 433,162 Less: Accum. Deprn. 65,420 73,797 82,599 92,059 105,044 119,071 137,444 156,497 Net Fixed Assets 114,003 116,342 131,224 158,718 200,212 256,591 285,718 276,665 Capital WIP 6,831 18,965 35,054 20,384 30,000 15,000 22,500 27,500 Investments 37,303 37,888 51,087 53,917 52,088 24,500 34,500 34,500

Curr. Assets 41,809 56,257 56,723 64,489 69,850 78,938 98,870 159,685 Inventory 19,565 20,359 23,505 23,684 27,514 31,505 39,520 47,045 Debtors 6,023 7,660 10,172 12,810 12,032 14,002 15,808 18,818 Cash & Bank Bal 1,448 1,896 1,427 2,775 2,139 1,925 4,023 46,777 Others 14,773 26,342 21,619 25,220 28,165 31,505 39,520 47,045 Curr. Liability & Prov. 49,612 41,947 48,595 51,614 61,511 66,511 79,039 88,862 Creditors 43,877 33,740 37,903 41,884 48,481 52,509 65,866 73,181 Provisions 5,735 8,207 10,692 9,730 13,030 14,002 13,173 15,682 Net Current Assets -7,803 14,310 8,128 12,875 8,339 12,427 19,831 70,822

Appl. of Funds 150,334 187,505 225,493 245,927 290,638 308,518 391,549 438,487 E: MOSL Estimates

Ultratech Cement

29 May 2015 32

Financials and valuations

Ratios Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Basic (INR)

EPS 51.2 87.8 96.0 75.6 73.4 90.3 134.9 197.1 Cash EPS 79.2 120.7 130.5 114.0 114.7 141.4 201.9 266.6 BV/Share 389.2 469.2 556 623 687 764 882 1,059 DPS 6.0 8.0 9.0 9.0 9.0 11.0 15.0 17.5 Payout (%) 13.6 10.4 11.0 13.5 14.2 14.2 12.9 10.3

Valuation (x)

P/E

39.7 32.3 21.6 14.8

Cash P/E

25.4 20.6 14.4 10.9 P/BV

4.2 3.8 3.3 2.8

EV/Sales

3 3 2.7 2.1 EV/EBITDA

20.2 16.4 11.7 8.3

EV/Ton (Cap-USD)

204 200 192 181 Dividend Yield (%)

0.3 0.4 0.5 0.6

Return Ratios (%)

RoIC 13.0 15.7 14.2 9.1 7.1 7.9 10.0 13.3 RoE 18.4 20.5 18.7 12.8 11.2 12.4 16.4 20.3 RoCE 21.1 23.5 21.3 14.4 14.1 15.3 19.1 22.4

Working Capital Ratios

Fixed Asset Turnover (x) 1.4 1.0 1.1 1.2 1.4 1.5 1.3 1.1 Debtor (Days) 17 15 19 23 19 20 18 18 Creditor (Days) 121 68 69 76 78 75 75 70 Inventory (Days) 54 41 43 43 44 45 45 45 Working Capital Turnover (Days) -22 29 15 23 13 18 23 68

Leverage Ratio

Current Ratio 0.8 1.3 1.2 1.2 1.1 1.2 1.3 1.8 Interest Cover Ratio 6.6 13.9 16.9 8.0 5.1 6.1 5.8 8.3 Debt/Equity 0.2 0.3 0.4 0.3 0.4 0.3 0.5 0.4

Cash Flow Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Op. Profit/(Loss) before Tax 25,635 41,304 46,244 36,160 39,153 50,360 73,333 96,602 Interest/Dividends Recd. 1,223 478 566 5,310 6,515 5,000 6,000 8,000 Direct Taxes Paid -5,190 -7,340 -7,165 -3,367 -3,753 -8,847 -12,595 -18,664 (Inc)/Dec in WC -925 158 -3,887 -3,399 3,900 -4,301 -5,306 -8,237 CF from Operations 20,743 34,600 35,759 34,704 45,815 42,212 61,432 77,700

EO expense 0 22 32 -956 0 0 0 0 CF from Operating incl EO expense 20,743 34,578 35,727 35,660 45,815 42,212 61,432 77,700 (inc)/dec in FA -12,169 -31,575 -32,676 -23,348 -62,440 -55,406 -84,000 -15,000 Free Cash Flow 8,574 3,003 3,051 12,312 -16,625 -13,194 -22,568 62,700 (Pur)/Sale of Investments -4,321 2,159 -10,349 -2,830 1,829 27,588 -10,000 0 CF from investments -16,489 -29,416 -43,025 -26,178 -60,611 -27,819 -94,000 -15,000

Issue of Shares 14 16 79 69 323 -154 0 0 (Inc)/Dec in Debt -664 83 12,557 -2,092 22,149 -5,000 49,000 -5,000 Interest Paid -2,930 -2,907 -3,268 -3,192 -5,475 -5,946 -9,551 -9,367 Dividend Paid -728 -1,905 -2,539 -2,887 -2,869 -3,507 -4,782 -5,579 CF from Fin. Activity -4,309 -4,714 6,829 -8,102 14,128 -14,607 34,666 -19,946 Inc/Dec of Cash -55 448 -469 1,380 -668 -214 2,098 42,754 Add: Beginning Balance 1,503 1,448 1,896 1,427 2,775 2,139 1,925 4,023 Closing Balance 1,448 1,896 1,427 2,775 2,139 1,925 4,023 46,777 E: MOSL Estimates

Ultratech Cement

29 May 2015 33

N O T E S

Ultratech Cement

29 May 2015 34

The second instance is of two large caps from the IT sector – TCS and Infosys. TCS’ valuation multiple reversed trend and it started enjoying a premium over Infosys from FY11, led by stronger earnings growth.

Click here for our May 2013 Theme Report, “who in Technology Creates Sustained wealth”, where we surmise TCS is the only tier-I IT company with an economic moat.

Click here for our latest update on BHEL

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Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues

Disclosure of Interest Statement ULTRATECH CEMENT Analyst ownership of the stock No Served as an officer, director or employee No

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For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.

This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.

The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.

For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Anosh Koppikar Kadambari Balachandran Email : [email protected] Email : [email protected] Contact : (+65)68189232 Contact : (+65) 68189233 / 65249115 Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931

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