Heidelberg Cement (MYSCEM) - ICICI Direct

Update on expansionThe company has completed its expansion project of 1.9 MT at Jhansi(Uttar Pradesh) and 1.0 MT at Damoh (MP). These new plants have beencommissioned and commercial production has commenced fromJanuary 16, 2013 and February 18, 2013, respectively. Post bothexpansions, the cement manufacturing of the company in central Indiahas increased by 2.9 MTPA while total manufacturing capacity hasincreased to 6 MTPA in Q1CY13.Shifting focus towards cost reductionThe company is also setting up a waste heat recovery based powergeneration plant at its clinkerisation unit at Narsingarh, District Damoh(Madhya Pradesh). The proposed plant will produce approximately 12.15MW of power from available waste heat of pyro-processing system of allthree clinkerisation lines at Narsingarh. The project cost is estimated to bein the range of | 145-150 crore and is likely to be operational in January2015. It will substitute equivalent grid power and, thus, reduce power costper tonne of clinker and improve profitability over the longer term.ValuationsWith full commissioning of new cement capacity of 2.9 MT from Q1CY13,we expect sales volumes to grow at a CAGR of ~25% during CY12-14E to4.6 MT in CY14E. Also, realisation is expected to improve progressively ata CAGR of 5% during the same period with a pick-up in infra activities.However, higher operating costs (including finance costs) with respect tocommissioning of its new capacity are likely to remain a concern duringH1CY13. We expect an EBITDA/tonne of | 326/tonne in CY13E and| 516/tonne in CY14E from EBITDA/tonne of | 256/tonne in CY12.At the CMP of | 40, the stock is trading at an EV/EBITDA of 12.6x and 6.5xCY13E and CY14E EBITDA, respectively. On an EV/tonne basis, the stockis trading at $55 and $48 its CY13E and CY14E capacities, respectively,which leaves much scope for upsides from this level. However,considering the near term challenges in terms of demand slowdown, werevise our target price downwards to | 58/share (i.e. valuing at 8.5x FY15Eearnings, CY14E EV/tonne of $60/tonne). We continue to maintain ourBUY rating on the stock.Exhibit 5: Assumptions| per tonne CY10 CY11 CY12 CY13E CY14ESales Volume (mtpa) 2.7 2.9 2.9 4.3 4.6Net Realisation 3178 3344 3790 3904 4139Total Expenditure 2815 3138 3534 3578 3623Stock Adjustment 4 11 -88 -70 0Raw material 773 786 1078 1040 1000Power & Fuel 715 882 1055 1156 1100Employees 237 267 318 244 279Freight 424 468 526 622 550Others 663 724 645 587 694EBITDA per Tonne 363 206 256 326 516Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 3

Financial summaryProfit and loss statement(| Crore)(Year-end March) CY11 CY12 CY13E CY14ETotal operating Income 982.7 1,101.2 1,696.1 1,892.0Growth (%) 13.5 12.1 54.0 11.6Raw material 234.0 287.6 421.2 457.1Power & Fuel 259.2 306.5 502.2 502.8Employees 78.6 92.4 105.9 127.6Freight 137.7 152.9 270.1 251.4Others 212.7 187.5 255.1 317.2Total Operating Exp. 922.2 1,026.8 1,554.5 1,656.1EBITDA 60.5 74.4 141.6 235.8Growth (%) -38.9 23.1 90.3 66.5Depreciation 31.4 31.4 48.6 64.2Interest 3.8 10.5 83.3 80.6Other Income 17.1 13.1 10.1 3.2Exceptional items 0.0 0.0 0.0 0.0PBT 42.4 45.6 19.8 94.2Total Tax 13.2 14.8 8.8 31.1PAT 29.2 30.8 10.9 63.1Growth (%) -53.9 5.7 -64.5 476.8EPS (|) 1.3 1.4 0.5 2.8Source: Company, ICICIdirect.com ResearchBalance sheet(| Crore)(Year-end March) CY11 CY12P CY13E CY14ELiabilitiesEquity Capital 226.6 226.6 226.6 226.6Reserve and Surplus 589.0 620.0 622.2 680.1Total Shareholders funds 815.6 846.6 848.9 906.7Total Debt 776.9 1,030.8 1,030.8 830.8Deferred Tax Liability 33.1 37.7 37.7 37.7Minority Interest / Others 0.0 0.0 0.0 0.0Total Liabilities 1,625.6 1,915.1 1,917.4 1,775.2AssetsGross Block 992.5 1,427.7 2,626.0 2,726.0Less: Acc Depreciation 644.8 644.8 693.5 757.7Net Block 347.6 782.8 1,932.5 1,968.3Capital WIP 1,108.3 1,108.3 10.0 10.0Total Fixed Assets 1,455.9 1,891.1 1,942.5 1,978.3Investments 0.0 0.0 0.0 0.0Inventory 110.7 165.0 188.2 154.0Debtors 24.3 21.6 57.4 15.2Loans and Advances 253.3 303.8 476.4 91.2Other Current Assets 0.7 0.3 1.1 0.4Cash 310.8 73.2 158.1 195.0Total Current Assets 699.7 563.9 881.2 455.7Creditors 417.9 394.2 721.0 523.0Provisions 112.2 140.7 180.3 130.8Total Current Liabilities 530.0 534.9 901.3 653.8Net Current Assets 169.7 29.0 -20.1 -198.0Application of Funds 1,625.6 1,915.1 1,917.4 1,775.2Source: Company, ICICIdirect.com ResearchCash flow statement(| Crore)(Year-end March) CY11 CY12 CY13E CY14EProfit after Tax 29.2 30.8 10.9 63.1Add: Depreciation 31.4 31.4 48.6 64.2(Inc)/dec in Current Assets -145.2 -101.7 -232.4 462.3Inc/(dec) in CL and Provision 121.5 4.9 366.4 -247.5CF from operating activities 36.9 -34.6 193.6 342.2(Inc)/dec in Investments 0.0 0.0 0.0 0.0(Inc)/dec in Fixed Assets -728.7 -466.6 -100.0 -100.0Others 3.0 9.6 0.0 0.0CF from investing activities -725.7 -457.0 -100.0 -100.0Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0Inc/(dec) in loan funds 776.9 253.9 0.0 -200.0Dividend paid & dividend tax 0.0 0.0 -5.3 -5.3Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0Others 3.2 0.2 -3.4 0.0CF from financing activities 780.1 254.1 -8.7 -205.3Net Cash flow 91.2 -237.5 84.8 36.9Opening Cash 219.5 310.8 73.2 158.1Closing Cash 310.8 73.2 158.1 195.0Source: Company, ICICIdirect.com ResearchKey ratios(Year-end March) CY11 CY12 CY13E CY14EPer share data (|)EPS 1.3 1.4 0.5 2.8Cash EPS 2.7 2.7 2.6 5.6BV 36.0 37.4 37.5 40.0DPS 0.0 0.0 0.2 0.2Cash Per Share 13.7 3.2 7.0 8.6Operating Ratios (%)EBITDA Margin 6.2 6.8 8.3 12.5PAT Margin 3.0 2.8 0.6 3.3Inventory days 33.8 45.7 38.0 33.0Debtor days 9.0 7.6 8.5 7.0Creditor days 133.3 134.6 120.0 120.0Return Ratios (%)RoE 3.6 3.6 1.3 7.0RoCE 1.8 2.3 4.9 9.9RoIC 2.6 2.4 1.0 5.3Valuation Ratios (x)P/E 31.1 29.4 82.8 14.4EV / EBITDA 22.7 25.0 12.6 6.5EV / Net Sales 1.4 1.7 1.0 0.8Market Cap / Sales 0.9 0.8 0.5 0.5Price to Book Value 1.1 1.1 1.1 1.0Solvency RatiosDebt/EBITDA 12.8 13.8 7.3 3.5Debt / Equity 1.0 1.2 1.2 0.9Current Ratio 1.3 1.1 1.0 0.7Quick Ratio 0.7 0.9 0.8 0.4Source: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 4

Company DescriptionHeidelbergCement India (HCIL) is engaged in manufacturing of cement.The principal activity of HCIL is the manufacture of Portland cement at itsfour locations through Ammasandra (Karnataka), Damoh (MadhyaPradesh), Jhansi (Uttar Pradesh) and Raigad (Maharashtra). Thecompany’s products include Portland slag cement and Portland Pozzolanacement. Its core products include cement, ready mixed concrete (RMC),aggregates and related activities and is the producers of buildingmaterials worldwide. HCIL is a subsidiary of Cementrum IBV, which is100% controlled by HeidelbergCement AG.Exhibit 6: Recommendation History80706050403020100May-12Jun-12Aug-12Sep-12Nov-12Dec-12Feb-13Mar-13May-13PriceTarget PriceSource: Company, ICICIdirect.com ResearchExhibit 7: Recent ReleasesDate Event CMP Target Price Rating15-May-12 Q1CY12 Result Update 27 33 BUY23-Jul-12 Q2CY12 result Update 33 40 BUY15-Oct-12 Q3CY12 result Update 54 62 BUY27-Dec-12 Company update 54 69 BUY13-Feb-13 Q4CY12 Result update 44 69 BUYSource: Company, ICICIdirect.com ResearchICICI Securities Ltd | Retail Equity Research Page 5

ICICIdirect.com coverage universe (Cement)CMPEPS (|) P/E (x) EV/EBITDA (x) EV/Tonne ($) RoNW (%) RoCE (%)Company(|) TP(|) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14EACC* 1228 1340 68.8 78.9 89.6 21.8 15.6 13.7 10.2 10.2 7.5 122 122 120 14.4 16.8 17.1 18.8 16.1 20.5Ambuja* 189 205 9.7 10.5 11.4 19.5 17.9 16.5 10.4 9.9 7.6 174 157 143 17.2 15.2 14.7 19.4 18.0 20.9UltraTech 1886 2040 89.2 96.8 93.4 21.0 19.4 20.1 13.1 11.5 11.0 191 189 159 14.7 15.4 14.7 20.9 15.6 18.9Shree Cem 4668 4725 181.3 275.6 244.9 25.5 16.5 18.5 8.6 8.7 7.4 165 160 130 22.6 28.1 20.4 19.0 24.6 21.5India Cem 86 98 9.6 6.4 10.7 8.7 13.9 7.8 5.9 6.2 5.2 64 65 66 7.2 4.4 7.4 9.5 8.2 9.8JK Cem 255 365 26.0 33.2 36.7 12.5 9.6 8.6 5.8 5.5 5.7 70 75 86 11.6 13.5 13.2 14.2 14.7 14.3JK Lakshmi 96 158 12.4 17.1 19.6 10.8 7.8 6.8 6.7 5.3 4.8 77 87 58 9.3 15.6 15.4 8.4 11.0 10.0Mangalam 125 155 21.0 29.0 21.8 6.0 4.3 5.7 3.3 3.7 4.4 30 43 50 13.0 15.7 10.6 13.8 14.0 9.4Heidelberg* 40 58 1.4 0.5 2.8 29.4 82.8 14.4 25.0 12.6 6.5 69 55 48 3.6 1.3 7.0 2.3 4.9 9.9Source: Company, ICICIdirect.com Research (* Calendar year ending December)ICICI Securities Ltd | Retail Equity Research Page 6

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