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October 7, 2010

                                                                                            Recommendations                <= 1 year 1 - 2 yrs 2 - 5 yrs
  ACC LTD                                                                       SELL
                                                                                            Strong Buy
• ACC Ltd, a Switzerland based Holcim group company, is currently the second largest        Buy
  cement manufacturer of the country with a capacity of 27.1mtpa after the recent merger    Hold
  of Ultratech Cement.                                                                      Reduce
                                                                                            Sell
• Of the total capacity, southern region accounts for 39%, while the northern, eastern,     Strong Buy – Expected Returns > 20% p.a.
  central and western regions account for the remaining 21%, 19%, 17% and 4%                Buy – Expected Returns from 10 to 20% p.a.
                                                                                            Hold – Expected Returns from 0 % to 10% p.a.
  respectively.                                                                             Reduce – Expected Returns from 0 % to 10% p.a. with possible downside
                                                                                            risk
• Volume growth for the company would be led by higher capacity utilization at the 2.7mt    Sell – Returns < 0 %
  and 1.1mt of incremental capacity commissioned in Karnataka and Orissa, respectively,
  during the last 6-9 months.
• ACC plans to commission power generation capacity of 90MW during 2010 which would             STOCK DATA
  increase the total captive power generation capacity to 346MW by CY2010 increasing the        BSE / NSE Code                                  500410/ ACC
                                                                                                Bloomberg Code                                ACC IN EQUITY
  use of captive power from current 70% to nearly 80% by CY11.                                  No. of Shares (Mn)                                    187.74
                                                                                                Sensex / Nifty                                 20,543 / 6,186
• The company has a strong balance sheet with debt-equity ratio of 0.1 and net cash of Rs
                                                                                                PRICE DATA
  13bn as on December 2009, which would enable smooth funding for its expansion plans           CMP Rs (6th Oct'10)                                   1,026.6
                                                                                                Beta                                                     0.65
  and inorganic growth opportunities.
                                                                                                Market Cap (Rs mn)                                   192,734
• We estimate ACC Ltd’s revenues to grow at a CAGR of 8.2% over CY2009-11 to Rs 98.3bn          52 Week High-low                                   1039 - 686
                                                                                                Average Daily Volume                                  88,836
  by CY2011. We also estimate that PAT would decline to Rs 13bn in CY2011 from Rs 15.6bn        STOCK RETURN (%)
  in CY2009.                                                                                                         30D               3M      6M        1Y
                                                                                                ACC                  14%               20%      8%      28%
 Based on an average of CY11E consolidated EV/EBITDA multiple of 6 and an                       Sensex               11%               17%     15%      21%
                                                                                                Nifty                11%               17%     15%      23%
 EV/ tonne of USD 120, the fair value for the company works out to Rs 859.
                                                                                                SHARE HOLDING PATTERN (%)
  Financial Snapshot                                                                            Promoter                                                 46.2
  Projections (Rs Mn)           CY07A       CY08A       CY09A        CY10E      CY11E           Institution                                              33.5
                                                                                                Non Institution                                          20.3
  Revenue                        69,408      75,641       83,904      96,396     98,300
                                                                                                Total                                                   100.0
  Y-o-Y Growth %                  20.4%         9.0%      10.9%       14.9%        2.0%
                                                                                                1 Year Price Performance (Rel. to Sensex)
  EBIDTA                         23,130      19,853       27,285      29,298     26,155
                                                                                                35
  Y-o-Y Growth %                  17.1%      -14.2%       37.4%        7.4%      -10.7%
                                                                                                30           Sensex        ACC
  PAT                            14,275      10,996       15,639      16,395     13,314
                                                                                                25
  Y-o-Y Growth %                 15.1%       -23.0%       42.2%        4.8%      -18.8%
                                                                                                20
  EPS Rs                           72.5         55.1        79.3        87.3        70.9
                                                                                                15
  BVPS Rs                         221.6        256.8       312.3       400.0       470.9
                                                                                                10
  EBIDTA %                       33.3%        26.2%       32.5%       30.4%       26.6%
                                                                                                 5
  NPM %                          20.6%        14.5%       18.6%       17.0%       13.5%
                                                                                                 0
  ROE %                          32.7%        21.5%       25.4%       21.8%       15.1%
                                                                                                 -5
  PER x                                                                 11.8        14.5
                                                                                               -10
  P/B Ratio                                                               2.6        2.2
                                                                                               -15
  * Y/E December



www.fullertonsecurities.co.in                                                                          Page | 1
October 7, 2010

  BUSINESS PROFILE
   ACC Ltd was established in 1939 as a result of a merger between ten cement companies belonging to prominent group
like Tata, Khatau's, Killick Nixon and F E Din Shaw group. In 2000, Ambuja Cement acquired the stake held by the Tata's and      ACC’s current capacity
subsequently became the single largest shareholder in ACC. In 2005, ACC became part of the Swiss major Holcim Group              of 27mtpa is expected
                                                                                                                                 to reach 30.7mt by the
which had acquired the management control of Ambuja Cement.                                                                      end of CY10.
    The company's operations are spread throughout the country with 16 modern cement factories, more than 40 Ready
mix concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 9,000 persons and a countrywide
distribution network of over 9,000 dealers. In order to focus on the core cement operations, ACC has over the years exited
from the refractory business and divested its interest in various subsidiaries. With an operational capacity of 27.1mt, it is
currently the second largest cement manufacturer in India after the recently merged Ultratech Cement. Nearly 60% of the
capacities are in the southern & northern region while it has the lowest exposure in the western market. It operates under
the ACC brand which is well established and commands a premium over regional brands. The company has also been
acquiring stakes in smaller companies like 45% stake in Asian Cement (0.3mt) and 100% stake in Encore Cement (0.2mt).

                            Annual Capacity Growth                                 Current Capacity Break-up
                       35

                       30                                                                      16%
                       25
     Capacity (mtpa)




                       20
                                                                                          4%                          39%
                       15

                       10                                                                19%
                        5

                        0
                                                                                                       22%

                                   Cement Capacity                               South India          North India           East India
                                                                                 West India           Central India

Expansion to lead to higher volume growth in the near-term ….

    ACC’s expansion at Chanda in Maharashtra, where the company is setting up a 3mtpa plant along with a 25MW
                                                                                                                                 Volume           growth
 power plant for captive consumption is scheduled to be commissioned in Q4 CY10. The recently commissioned 1.1mt                 expected             on
                                                                                                                                 stabilization   of the
 unit at Orissa in Q4 CY09 and 2.7mt Karnataka grinding capacities in Q1 CY10 are expected to stabilize in a few months.
                                                                                                                                 recent          capacity
    The remaining phase of the Karnataka programme including additional captive power generation capacity of 50                  addition
 MW is expected to be completed by mid 2010. This, with the 15MW CPP at Bagarh plant will take the total captive
 power capacity to 346MW, which would cater to nearly 80% power requirements of the company. We estimate the
 total capex on these projects to be at Rs 28bn by the end of CY11.




www.fullertonsecurities.co.in                                                                            Page | 2
October 7, 2010


    BUSINESS PERFORMANCE
Dispatches to touch 25mt in CY11….

 The consolidated revenue during the year ended December 2009 rose 10.9% to Rs 83.9bn as compared to the previous
 year ended December 2008. The sales volume grew marginally by 2.6% on a year-on-year basis. The EBITDA margin in                                              Total Income to touch
                                                                                                                                                               Rs 100bn in CY11
 2009 was 32.5%, as against 26.2% in 2008, enabled by a combination of factors including higher prices and cost controls.
 The net profit after tax increased 42% to Rs 15.6bn during the year ended December 2009. During H1CY10, the
 consolidated revenue increased by just 1% to Rs 44bn as compared to the same period last year as inadequate availability
 of railway wagons lead the volumes lower by 3% to 10.85mt during the period.

                                  Annual Revenues & Margins                                                                         Quarterly Performance
                     120000                                                   35%                                     23000                                               40%

                                                                              30%                                     22500                                               35%
                     100000
                                                                                                                                                                          30%
 Revenues (Rs mn)




                                                                              25%                 Revenues (Rs mn)    22000




                                                                                                                                                                                Margins(%)
                                                                                     Margins(%)




                      80000                                                                                                                                               25%
                                                                              20%
                                                                                                                      21500
                                                                                                                                                                          20%
                      60000                                                                                           21000
                                                                              15%                                                                                         15%
                      40000                                                                                           20500                                               10%
                                                                              10%
                                                                                                                      20000                                               5%
                      20000                                                   5%
                                                                                                                      19500                                               0%
                          0                                                   0%




                              Revenue (Rs mn)     PAT Margins      EBITDA Margins                                             Net Revenue (Rs mn)        EBITDA Margins

Peer Group Comparison
                                       Revenue     EBIDTA       PAT Margin          EV                               P/E          P/B          CMP      FV
Companies
                                       (Rs. mn)   Margin (%)       (%)          ($/tonne)                            (x)          (x)          (Rs.)   (Rs.)
ACC                                      83,904      33%           19%              157                              12.9          3.3         1027    10.0
Ambuja Cement                            70,768      30%           17%              188                              17.9          3.4          143    2.0
Ultratech Cement                         71,750      29%           15%              136                              12.6          3.0         1105    10.0
* Y/E Dec for ACC & Ambuja Cem, $/Re = 45
Peer Comparison

                    We believe that the recent run-up in the cement stocks on account of cement price hikes (post monsoon) is                                  Cement stocks trading
unwarranted as the industry is still going through a scenario where oversupply concerns and rising input costs, led by                                         at     a    significant
                                                                                                                                                               premium     to    their
higher coal prices and freight charges would keep realizations and margins under pressure. At current price levels, the                                        replacement costs
large companies (representing the Holcim & Aditya Birla Group, which together controls nearly 40% of the Indian cement
industry) are trading significantly higher than replacement cost of USD 110-120.



www.fullertonsecurities.co.in                                                                                                             Page | 3
October 7, 2010


      VALUATION
       We estimate ACC Ltd’s revenues to grow at a CAGR of 8.2% over CY2009-11 to Rs 98.3bn by CY2011. We
  also estimate that PAT would decline to Rs 13bn in CY2011 from Rs 15.6bn in CY2009.                                          Based on an average of
                                                                                                                               CY11E         consolidated
                                                                                                                               EV/EBITDA multiple of 6
      The industry has added over 70mt in the last two years to reach the current levels of nearly 270mt and is                and an EV/ tonne of USD
  expected to further add 30mt by FY11. We believe that the stabilization of the recent capacity addition would                120, the fair value for the
                                                                                                                               company works out to Rs
  lead to an oversupply situation raising concerns over sustainability of the recent price hikes. In addition, coal            859.
  prices are expected to be firm amid shortages.


      Based on an average of CY11E consolidated EV/EBITDA multiple of 6 and an EV/ tonne of
  USD 120, the fair value for the company works out to Rs 859.

  We recommend a ‘SELL’ rating on the stock.


Financial Analysis and Projections                                                Fair Value Calculation
                                                                                  EV/ tonne method                      EV/ EBITDA method
Particulars (Rs Mn)        CY07A      CY08A        CY09A     CY10E      CY11E
                                                                                  EV / tonne ($)                  120   EV / EBITDA multiple             6.0
Net Revenue                 69,408     75,641      83,904     96,396    98,300
                                                                                  CY11E Capacity (mtpa)          30.7   CY11E EBITDA (Rs mn)           26,155
Other Income                 3,806      3,229       2,662      3,374     3,440
                                                                                  EV (Rs Mn)                    165,618 EV (Rs mn)                     156,931
Total Income                73,215     78,870      86,566     99,770   101,740
                                                                                  CY11E Net Cash (Rs mn)         8,382 CY11E Net Cash (Rs mn)           8,382
Operating Expenditure       50,084     59,017      59,281     70,472    75,585
                                                                                  Equity Value (Rs mn)          174,000 Equity Value (Rs mn)           148,549
Depreciation                 3,130      3,205       3,731      4,743     5,349
EBIT                        20,000     16,648      23,553     24,555    20,806    Fair Value (Rs per share)       927   Fair Value (Rs per share)        791
                                                                                                                        Average Value (Rs per share)     859
EBIT Margin (%)             28.8%      22.0%       28.1%      25.5%     21.2%
Interest                       744        400       1,047      1,134     1,786
Profit Before Tax           19,256     16,248      22,506     23,421    19,020
Less: Tax                    4,981      5,252       6,868      7,026     5,706
Profit After Tax            14,275     10,996      15,639     16,395    13,314
PAT Margin (%)              20.6%      14.5%       18.6%      17.0%     13.5%
ROE (%)                     32.7%      21.5%       25.4%      21.8%     15.1%
EPS (Rs)                      72.5       55.1        79.3       87.3      70.9
BVPS (Rs)                    221.6      256.8       312.3      400.0     470.9


Valuation Ratios (x)                                         CY10E      CY11E
P/E                                                             11.8       14.5
P/B                                                              2.6        2.2
* Y/E December




www.fullertonsecurities.co.in                                                                                 Page | 4
October 7, 2010

      Board Of Directors
        Director Name      Current Position                                                       Description

                                              Mr. N. S. Sekhsaria serves as Non-Executive Chairman of the Board of ACC Ltd. Mr. Sekhsaria is the Founder-Promoter
                                              and current Chairman of Ambuja Cements Limited. Mr. Sekhsaria was invited to join the ACC Board in 1999 and was
                                              appointed Deputy Chairman from January 2000. He took over as its Chairman in January 2006. Mr. Sekhsaria built
      N S Sekhsaria      Chairman             Ambuja Cement into a benchmark for Indian Industry. His acumen as an entrepreneur and technocrat turned
                                              Ambuja into the most efficient and profitable cement company in India and redefined industry practices by
                                              changing the perception of cement from a commodity to a branded product. Under his leadership, ACC has
                                              achieved improvements in the areas of project management, logistics and overall cost-competitiveness.



                                              Mr. Paul Hugentobler serves as Non-Executive Deputy Chairman of the Board of ACC Ltd. He obtained a degree in
                                              Civil Engineering from the ETH, Zurich, and a degree in Economic Science from the University of St. Gallen. He joined
                                              Holcim Group Support Limited in 1980 as Project Manager and in 1994 was appointed as Area Manager for Holcim
      Paul Hugentobler   Deputy Chairman      Limited. From 1999 until 2000, he also served as CEO of Siam City Cement, Bangkok, Thailand. He has been a
                                              Member of the Executive Committee since January 1, 2002 with the responsibility for South Asia and ASEAN
                                              excluding Philippines. He has been appointed as Vice Chairman of Ambuja Cements Limited with effect from
                                              September 24, 2009.



                                              Mr. Kuldip Kaura has been appointed as Chief Executive Officer, Managing Director of ACC Ltd with effect from
                                              August 13, 2010. He was Non-Executive Independent Director of the Company. Mr. Kaura holds a degree in
                                              Mechanical Engineering, BE (Hons.) from Birla Institute of Technology & Science, Pilani and had also attended various
                         Managing Director
      Kuldip Kaura                            Executive Education Programmes at London Business School and Swedish Institute of Management, Stockholm. Mr.
                         & CEO
                                              Kaura has experience in businesses and companies in diverse sectors such as power, natural resources, metals,
                                              mining etc. and has deep understanding of Corporate Governance, brand building and Sustainable Development in
                                              India, U.K. and U.S. Regulatory Environment. He is presently Advisor with Vedanta Resources Plc.


                                              Mr. Sam Palia serves as Non-Executive Independent Director of ACC Ltd. Mr. Palia is a Development Banker by
                                              profession. He was with IDBI from 1964-1989 during which period he held various responsible positions including
                                              that of an Executive Director. He has also acted as an Advisor to Industrial Bank of Yemen, Saana (North Yemen) and
                                              Industrial Bank of Sudan, Khartoum (Sudan) under World Bank assistance programmes. He was also the Managing
      Sam Palia          Director
                                              Director of Kerala Industrial & Technical Consultancy Organization Limited, set up to provide consultancy service to
                                              micro enterprises and small and medium enterprises. He is a Director on the Boards of companies viz. Tata Steel
                                              Limited, Tata Motors Limited, Bombay Dyeing & Manufacturing Co. Limited. He is Chairman-Emeritus of Rashtriya
                                              Gramin Vikas Nidhi and a Trustee of Bombay Community Public Trust.


                                              Mr. Naresh Chandra serves as Non-Executive Independent Director of ACC Ltd. He is a post graduate in mathematics
                                              from Allahabad University. He was a distinguished member of the Indian Administrative Service (IAS) and former
                                              Cabinet Secretary to the Government of India. He has held various important positions including that of Governor of
      Naresh Chandra     Director             the State of Gujarat and India’s Ambassador to the United States of America. He has served on numerous important
                                              Committees including as Chairman of Corporate Governance Committee instituted by the Government of India. Mr.
                                              Naresh Chandra, is Chairman of Committee of Civil Aviation Policy, Ministry of Civil Aviation. He is a Director on the
                                              Boards of various companies. In the year 2007, he was honoured with Padma Vibhushan by the Government of India.




www.fullertonsecurities.co.in                                                                                 Page | 5
October 7, 2010

    Board Of Directors Contd...
                                        Mr. Markus Akermann serves as Non-Executive Director of ACC Ltd. He is the Chief Executive Officer and member of
                                        the Board of Directors of Holcim Limited. He obtained a degree in Business Economics from the University of St.
                                        Gallen in 1973 and studied Economic and Social Sciences at the University of Sheffield, U.K. Mr. Akermann began his
                                        professional career in 1975 with the former Swiss Bank Corporation. In 1978, he moved to Holcim where he was
    Markus Akermann Director
                                        active in a number of roles including Area Manager for Latin America and Holcim Trading. In 1993, he was appointed
                                        to the Executive Committee with responsibility for Latin America and international trading activities. On January 1,
                                        2002, he was appointed Chief Executive Officer and at the Annual General Meeting in 2002, he was elected to the
                                        Board of Directors of Holcim Limited.
                                        Mr. M.L. Narula serves as Non-Executive Director of ACC Ltd. He is a Graduate from Punjab University and Fellow,
                                        Institute of Engineers. Mr. Narula has been closely associated with the Company for over 45 years in various senior
                                        positions in plant and Corporate Office including that of Wholetime Director since April 1996 and was the Managing
    M L Narula          Director        Director of the Company from December 1, 2002 till his retirement on March 31, 2007. Mr. Narula has experience and
                                        in depth knowledge of the Cement Industry. He is presently a Non-Executive Director on the Company’s Board with
                                        effect from April 1, 2007. Mr. Narula is also a Director on the Boards of other Indian and Foreign Companies and
                                        Senior Advisor to Holcim Group Services, Zurich, Switzerland.

                                        Mr. R. A. Shah serves as Non-Executive Independent Director of ACC Ltd. He is a Solicitor and a Senior Partner of M/s.
                                        Crawford Bayley and Co., a firm of Advocates & Solicitors. He specializes in a broad spectrum of corporate laws in
                                        general, with special focus on Foreign Investments, Joint Ventures, Technology and License Agreement, Intellectual
    R A Shah            Director
                                        Property Rights, Mergers and Acquisitions, Industrial Licensing, Anti Trust Laws, Company Law and Taxation. He is a
                                        Director on the Board of various public limited companies and is Chairman of the Board in many of these companies.
                                        He is also on the Audit Committee of some of the companies on which he is a Director.


                                        Mr. Shailesh V. Haribhakti serves as Non-Executive Independent Director of ACC Ltd. He is Fellow Chartered
                                        Accountant. Mr. Shailesh Haribhakti is the Executive Chairman of BDO Consulting Pvt. Ltd. He served a three year
                                        term on the Standards Advisory Council of the International Accounting Standards Board. He is a Committee
    Shailesh Haribhakti Director        Member of Futures & Options segment of National Stock Exchange of India Limited and a Member of the SEBI
                                        Committee on Disclosures and Accounting Standards. He serves as Member of Managing Committees of ASSOCHAM
                                        and IMC and Corporate Governance Committees of ASSOCHAM and CII and is Chairman of the Global Warming
                                        Committee of IMC. He is on the Board of Directors of several listed and private companies.

                                        Mr. Aidan John Lynam has been appointed as a Director of ACC Limited with effect from April 22, 2010. He holds a
                                        degree in Engineering from the University College of Dublin and an MBA from IMD, Lausanne, Switzerland. In
                                        addition to the above, he holds the following Professional Memberships: Member of the Institute of Engineers in
                                        Ireland (MIEI), Chartered Member of the British Institute of Manufacturing Engineers (C.Eng. M.I.E.E), Board Member
    Aidan Lynam         Director
                                        (2009) of European Chamber of Commerce in Vietnam. Mr. Lynam is presently in the services of Holcim Limited and
                                        is Area Manager responsible for Vietnam, Sri Lanka, Bangladesh, Singapore, Malaysia and Cambodia. He is also
                                        regionally responsible for the OH&S and Geocycle core groups of Holcim and the Holcim South East Asia IT Shared
                                        Service Centre.

                                        Mr. Dinesh Kumar Mehrotra serves as Non-Executive Independent Director - Nominee of LIC of ACC Ltd. Mr.
                                        Mehrotra is the Managing Director of Life Insurance Corporation of India (LIC) and is also a director on the Board of
    D K Mehrotra        Nominee (LIC)
                                        Directors of some of LIC’s subsidiary companies within and outside India and other public limited companies. He
                                        represents LIC on the ACC Board.




www.fullertonsecurities.co.in                                                                            Page | 6

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ACC LTD : SELL

  • 1. October 7, 2010 Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs ACC LTD SELL Strong Buy • ACC Ltd, a Switzerland based Holcim group company, is currently the second largest Buy cement manufacturer of the country with a capacity of 27.1mtpa after the recent merger Hold of Ultratech Cement. Reduce Sell • Of the total capacity, southern region accounts for 39%, while the northern, eastern, Strong Buy – Expected Returns > 20% p.a. central and western regions account for the remaining 21%, 19%, 17% and 4% Buy – Expected Returns from 10 to 20% p.a. Hold – Expected Returns from 0 % to 10% p.a. respectively. Reduce – Expected Returns from 0 % to 10% p.a. with possible downside risk • Volume growth for the company would be led by higher capacity utilization at the 2.7mt Sell – Returns < 0 % and 1.1mt of incremental capacity commissioned in Karnataka and Orissa, respectively, during the last 6-9 months. • ACC plans to commission power generation capacity of 90MW during 2010 which would STOCK DATA increase the total captive power generation capacity to 346MW by CY2010 increasing the BSE / NSE Code 500410/ ACC Bloomberg Code ACC IN EQUITY use of captive power from current 70% to nearly 80% by CY11. No. of Shares (Mn) 187.74 Sensex / Nifty 20,543 / 6,186 • The company has a strong balance sheet with debt-equity ratio of 0.1 and net cash of Rs PRICE DATA 13bn as on December 2009, which would enable smooth funding for its expansion plans CMP Rs (6th Oct'10) 1,026.6 Beta 0.65 and inorganic growth opportunities. Market Cap (Rs mn) 192,734 • We estimate ACC Ltd’s revenues to grow at a CAGR of 8.2% over CY2009-11 to Rs 98.3bn 52 Week High-low 1039 - 686 Average Daily Volume 88,836 by CY2011. We also estimate that PAT would decline to Rs 13bn in CY2011 from Rs 15.6bn STOCK RETURN (%) in CY2009. 30D 3M 6M 1Y ACC 14% 20% 8% 28% Based on an average of CY11E consolidated EV/EBITDA multiple of 6 and an Sensex 11% 17% 15% 21% Nifty 11% 17% 15% 23% EV/ tonne of USD 120, the fair value for the company works out to Rs 859. SHARE HOLDING PATTERN (%) Financial Snapshot Promoter 46.2 Projections (Rs Mn) CY07A CY08A CY09A CY10E CY11E Institution 33.5 Non Institution 20.3 Revenue 69,408 75,641 83,904 96,396 98,300 Total 100.0 Y-o-Y Growth % 20.4% 9.0% 10.9% 14.9% 2.0% 1 Year Price Performance (Rel. to Sensex) EBIDTA 23,130 19,853 27,285 29,298 26,155 35 Y-o-Y Growth % 17.1% -14.2% 37.4% 7.4% -10.7% 30 Sensex ACC PAT 14,275 10,996 15,639 16,395 13,314 25 Y-o-Y Growth % 15.1% -23.0% 42.2% 4.8% -18.8% 20 EPS Rs 72.5 55.1 79.3 87.3 70.9 15 BVPS Rs 221.6 256.8 312.3 400.0 470.9 10 EBIDTA % 33.3% 26.2% 32.5% 30.4% 26.6% 5 NPM % 20.6% 14.5% 18.6% 17.0% 13.5% 0 ROE % 32.7% 21.5% 25.4% 21.8% 15.1% -5 PER x 11.8 14.5 -10 P/B Ratio 2.6 2.2 -15 * Y/E December www.fullertonsecurities.co.in Page | 1
  • 2. October 7, 2010 BUSINESS PROFILE ACC Ltd was established in 1939 as a result of a merger between ten cement companies belonging to prominent group like Tata, Khatau's, Killick Nixon and F E Din Shaw group. In 2000, Ambuja Cement acquired the stake held by the Tata's and ACC’s current capacity subsequently became the single largest shareholder in ACC. In 2005, ACC became part of the Swiss major Holcim Group of 27mtpa is expected to reach 30.7mt by the which had acquired the management control of Ambuja Cement. end of CY10. The company's operations are spread throughout the country with 16 modern cement factories, more than 40 Ready mix concrete plants, 20 sales offices, and several zonal offices. It has a workforce of about 9,000 persons and a countrywide distribution network of over 9,000 dealers. In order to focus on the core cement operations, ACC has over the years exited from the refractory business and divested its interest in various subsidiaries. With an operational capacity of 27.1mt, it is currently the second largest cement manufacturer in India after the recently merged Ultratech Cement. Nearly 60% of the capacities are in the southern & northern region while it has the lowest exposure in the western market. It operates under the ACC brand which is well established and commands a premium over regional brands. The company has also been acquiring stakes in smaller companies like 45% stake in Asian Cement (0.3mt) and 100% stake in Encore Cement (0.2mt). Annual Capacity Growth Current Capacity Break-up 35 30 16% 25 Capacity (mtpa) 20 4% 39% 15 10 19% 5 0 22% Cement Capacity South India North India East India West India Central India Expansion to lead to higher volume growth in the near-term …. ACC’s expansion at Chanda in Maharashtra, where the company is setting up a 3mtpa plant along with a 25MW Volume growth power plant for captive consumption is scheduled to be commissioned in Q4 CY10. The recently commissioned 1.1mt expected on stabilization of the unit at Orissa in Q4 CY09 and 2.7mt Karnataka grinding capacities in Q1 CY10 are expected to stabilize in a few months. recent capacity The remaining phase of the Karnataka programme including additional captive power generation capacity of 50 addition MW is expected to be completed by mid 2010. This, with the 15MW CPP at Bagarh plant will take the total captive power capacity to 346MW, which would cater to nearly 80% power requirements of the company. We estimate the total capex on these projects to be at Rs 28bn by the end of CY11. www.fullertonsecurities.co.in Page | 2
  • 3. October 7, 2010 BUSINESS PERFORMANCE Dispatches to touch 25mt in CY11…. The consolidated revenue during the year ended December 2009 rose 10.9% to Rs 83.9bn as compared to the previous year ended December 2008. The sales volume grew marginally by 2.6% on a year-on-year basis. The EBITDA margin in Total Income to touch Rs 100bn in CY11 2009 was 32.5%, as against 26.2% in 2008, enabled by a combination of factors including higher prices and cost controls. The net profit after tax increased 42% to Rs 15.6bn during the year ended December 2009. During H1CY10, the consolidated revenue increased by just 1% to Rs 44bn as compared to the same period last year as inadequate availability of railway wagons lead the volumes lower by 3% to 10.85mt during the period. Annual Revenues & Margins Quarterly Performance 120000 35% 23000 40% 30% 22500 35% 100000 30% Revenues (Rs mn) 25% Revenues (Rs mn) 22000 Margins(%) Margins(%) 80000 25% 20% 21500 20% 60000 21000 15% 15% 40000 20500 10% 10% 20000 5% 20000 5% 19500 0% 0 0% Revenue (Rs mn) PAT Margins EBITDA Margins Net Revenue (Rs mn) EBITDA Margins Peer Group Comparison Revenue EBIDTA PAT Margin EV P/E P/B CMP FV Companies (Rs. mn) Margin (%) (%) ($/tonne) (x) (x) (Rs.) (Rs.) ACC 83,904 33% 19% 157 12.9 3.3 1027 10.0 Ambuja Cement 70,768 30% 17% 188 17.9 3.4 143 2.0 Ultratech Cement 71,750 29% 15% 136 12.6 3.0 1105 10.0 * Y/E Dec for ACC & Ambuja Cem, $/Re = 45 Peer Comparison We believe that the recent run-up in the cement stocks on account of cement price hikes (post monsoon) is Cement stocks trading unwarranted as the industry is still going through a scenario where oversupply concerns and rising input costs, led by at a significant premium to their higher coal prices and freight charges would keep realizations and margins under pressure. At current price levels, the replacement costs large companies (representing the Holcim & Aditya Birla Group, which together controls nearly 40% of the Indian cement industry) are trading significantly higher than replacement cost of USD 110-120. www.fullertonsecurities.co.in Page | 3
  • 4. October 7, 2010 VALUATION We estimate ACC Ltd’s revenues to grow at a CAGR of 8.2% over CY2009-11 to Rs 98.3bn by CY2011. We also estimate that PAT would decline to Rs 13bn in CY2011 from Rs 15.6bn in CY2009. Based on an average of CY11E consolidated EV/EBITDA multiple of 6 The industry has added over 70mt in the last two years to reach the current levels of nearly 270mt and is and an EV/ tonne of USD expected to further add 30mt by FY11. We believe that the stabilization of the recent capacity addition would 120, the fair value for the company works out to Rs lead to an oversupply situation raising concerns over sustainability of the recent price hikes. In addition, coal 859. prices are expected to be firm amid shortages. Based on an average of CY11E consolidated EV/EBITDA multiple of 6 and an EV/ tonne of USD 120, the fair value for the company works out to Rs 859. We recommend a ‘SELL’ rating on the stock. Financial Analysis and Projections Fair Value Calculation EV/ tonne method EV/ EBITDA method Particulars (Rs Mn) CY07A CY08A CY09A CY10E CY11E EV / tonne ($) 120 EV / EBITDA multiple 6.0 Net Revenue 69,408 75,641 83,904 96,396 98,300 CY11E Capacity (mtpa) 30.7 CY11E EBITDA (Rs mn) 26,155 Other Income 3,806 3,229 2,662 3,374 3,440 EV (Rs Mn) 165,618 EV (Rs mn) 156,931 Total Income 73,215 78,870 86,566 99,770 101,740 CY11E Net Cash (Rs mn) 8,382 CY11E Net Cash (Rs mn) 8,382 Operating Expenditure 50,084 59,017 59,281 70,472 75,585 Equity Value (Rs mn) 174,000 Equity Value (Rs mn) 148,549 Depreciation 3,130 3,205 3,731 4,743 5,349 EBIT 20,000 16,648 23,553 24,555 20,806 Fair Value (Rs per share) 927 Fair Value (Rs per share) 791 Average Value (Rs per share) 859 EBIT Margin (%) 28.8% 22.0% 28.1% 25.5% 21.2% Interest 744 400 1,047 1,134 1,786 Profit Before Tax 19,256 16,248 22,506 23,421 19,020 Less: Tax 4,981 5,252 6,868 7,026 5,706 Profit After Tax 14,275 10,996 15,639 16,395 13,314 PAT Margin (%) 20.6% 14.5% 18.6% 17.0% 13.5% ROE (%) 32.7% 21.5% 25.4% 21.8% 15.1% EPS (Rs) 72.5 55.1 79.3 87.3 70.9 BVPS (Rs) 221.6 256.8 312.3 400.0 470.9 Valuation Ratios (x) CY10E CY11E P/E 11.8 14.5 P/B 2.6 2.2 * Y/E December www.fullertonsecurities.co.in Page | 4
  • 5. October 7, 2010 Board Of Directors Director Name Current Position Description Mr. N. S. Sekhsaria serves as Non-Executive Chairman of the Board of ACC Ltd. Mr. Sekhsaria is the Founder-Promoter and current Chairman of Ambuja Cements Limited. Mr. Sekhsaria was invited to join the ACC Board in 1999 and was appointed Deputy Chairman from January 2000. He took over as its Chairman in January 2006. Mr. Sekhsaria built N S Sekhsaria Chairman Ambuja Cement into a benchmark for Indian Industry. His acumen as an entrepreneur and technocrat turned Ambuja into the most efficient and profitable cement company in India and redefined industry practices by changing the perception of cement from a commodity to a branded product. Under his leadership, ACC has achieved improvements in the areas of project management, logistics and overall cost-competitiveness. Mr. Paul Hugentobler serves as Non-Executive Deputy Chairman of the Board of ACC Ltd. He obtained a degree in Civil Engineering from the ETH, Zurich, and a degree in Economic Science from the University of St. Gallen. He joined Holcim Group Support Limited in 1980 as Project Manager and in 1994 was appointed as Area Manager for Holcim Paul Hugentobler Deputy Chairman Limited. From 1999 until 2000, he also served as CEO of Siam City Cement, Bangkok, Thailand. He has been a Member of the Executive Committee since January 1, 2002 with the responsibility for South Asia and ASEAN excluding Philippines. He has been appointed as Vice Chairman of Ambuja Cements Limited with effect from September 24, 2009. Mr. Kuldip Kaura has been appointed as Chief Executive Officer, Managing Director of ACC Ltd with effect from August 13, 2010. He was Non-Executive Independent Director of the Company. Mr. Kaura holds a degree in Mechanical Engineering, BE (Hons.) from Birla Institute of Technology & Science, Pilani and had also attended various Managing Director Kuldip Kaura Executive Education Programmes at London Business School and Swedish Institute of Management, Stockholm. Mr. & CEO Kaura has experience in businesses and companies in diverse sectors such as power, natural resources, metals, mining etc. and has deep understanding of Corporate Governance, brand building and Sustainable Development in India, U.K. and U.S. Regulatory Environment. He is presently Advisor with Vedanta Resources Plc. Mr. Sam Palia serves as Non-Executive Independent Director of ACC Ltd. Mr. Palia is a Development Banker by profession. He was with IDBI from 1964-1989 during which period he held various responsible positions including that of an Executive Director. He has also acted as an Advisor to Industrial Bank of Yemen, Saana (North Yemen) and Industrial Bank of Sudan, Khartoum (Sudan) under World Bank assistance programmes. He was also the Managing Sam Palia Director Director of Kerala Industrial & Technical Consultancy Organization Limited, set up to provide consultancy service to micro enterprises and small and medium enterprises. He is a Director on the Boards of companies viz. Tata Steel Limited, Tata Motors Limited, Bombay Dyeing & Manufacturing Co. Limited. He is Chairman-Emeritus of Rashtriya Gramin Vikas Nidhi and a Trustee of Bombay Community Public Trust. Mr. Naresh Chandra serves as Non-Executive Independent Director of ACC Ltd. He is a post graduate in mathematics from Allahabad University. He was a distinguished member of the Indian Administrative Service (IAS) and former Cabinet Secretary to the Government of India. He has held various important positions including that of Governor of Naresh Chandra Director the State of Gujarat and India’s Ambassador to the United States of America. He has served on numerous important Committees including as Chairman of Corporate Governance Committee instituted by the Government of India. Mr. Naresh Chandra, is Chairman of Committee of Civil Aviation Policy, Ministry of Civil Aviation. He is a Director on the Boards of various companies. In the year 2007, he was honoured with Padma Vibhushan by the Government of India. www.fullertonsecurities.co.in Page | 5
  • 6. October 7, 2010 Board Of Directors Contd... Mr. Markus Akermann serves as Non-Executive Director of ACC Ltd. He is the Chief Executive Officer and member of the Board of Directors of Holcim Limited. He obtained a degree in Business Economics from the University of St. Gallen in 1973 and studied Economic and Social Sciences at the University of Sheffield, U.K. Mr. Akermann began his professional career in 1975 with the former Swiss Bank Corporation. In 1978, he moved to Holcim where he was Markus Akermann Director active in a number of roles including Area Manager for Latin America and Holcim Trading. In 1993, he was appointed to the Executive Committee with responsibility for Latin America and international trading activities. On January 1, 2002, he was appointed Chief Executive Officer and at the Annual General Meeting in 2002, he was elected to the Board of Directors of Holcim Limited. Mr. M.L. Narula serves as Non-Executive Director of ACC Ltd. He is a Graduate from Punjab University and Fellow, Institute of Engineers. Mr. Narula has been closely associated with the Company for over 45 years in various senior positions in plant and Corporate Office including that of Wholetime Director since April 1996 and was the Managing M L Narula Director Director of the Company from December 1, 2002 till his retirement on March 31, 2007. Mr. Narula has experience and in depth knowledge of the Cement Industry. He is presently a Non-Executive Director on the Company’s Board with effect from April 1, 2007. Mr. Narula is also a Director on the Boards of other Indian and Foreign Companies and Senior Advisor to Holcim Group Services, Zurich, Switzerland. Mr. R. A. Shah serves as Non-Executive Independent Director of ACC Ltd. He is a Solicitor and a Senior Partner of M/s. Crawford Bayley and Co., a firm of Advocates & Solicitors. He specializes in a broad spectrum of corporate laws in general, with special focus on Foreign Investments, Joint Ventures, Technology and License Agreement, Intellectual R A Shah Director Property Rights, Mergers and Acquisitions, Industrial Licensing, Anti Trust Laws, Company Law and Taxation. He is a Director on the Board of various public limited companies and is Chairman of the Board in many of these companies. He is also on the Audit Committee of some of the companies on which he is a Director. Mr. Shailesh V. Haribhakti serves as Non-Executive Independent Director of ACC Ltd. He is Fellow Chartered Accountant. Mr. Shailesh Haribhakti is the Executive Chairman of BDO Consulting Pvt. Ltd. He served a three year term on the Standards Advisory Council of the International Accounting Standards Board. He is a Committee Shailesh Haribhakti Director Member of Futures & Options segment of National Stock Exchange of India Limited and a Member of the SEBI Committee on Disclosures and Accounting Standards. He serves as Member of Managing Committees of ASSOCHAM and IMC and Corporate Governance Committees of ASSOCHAM and CII and is Chairman of the Global Warming Committee of IMC. He is on the Board of Directors of several listed and private companies. Mr. Aidan John Lynam has been appointed as a Director of ACC Limited with effect from April 22, 2010. He holds a degree in Engineering from the University College of Dublin and an MBA from IMD, Lausanne, Switzerland. In addition to the above, he holds the following Professional Memberships: Member of the Institute of Engineers in Ireland (MIEI), Chartered Member of the British Institute of Manufacturing Engineers (C.Eng. M.I.E.E), Board Member Aidan Lynam Director (2009) of European Chamber of Commerce in Vietnam. Mr. Lynam is presently in the services of Holcim Limited and is Area Manager responsible for Vietnam, Sri Lanka, Bangladesh, Singapore, Malaysia and Cambodia. He is also regionally responsible for the OH&S and Geocycle core groups of Holcim and the Holcim South East Asia IT Shared Service Centre. Mr. Dinesh Kumar Mehrotra serves as Non-Executive Independent Director - Nominee of LIC of ACC Ltd. Mr. Mehrotra is the Managing Director of Life Insurance Corporation of India (LIC) and is also a director on the Board of D K Mehrotra Nominee (LIC) Directors of some of LIC’s subsidiary companies within and outside India and other public limited companies. He represents LIC on the ACC Board. www.fullertonsecurities.co.in Page | 6