>Ambuja Cements (MERRILL LYNCH)

AMBUJA CEMENTS LIMITED
Company Update - UNDERPERFORM

Company visit highlights.....

* Co offers sober demand assessment
Ambuja voiced doubts about sustainability of recent demand recovery beyond the upcoming elections. The Co said recent govt. measures have helped accelerate existing (real-estate & infrastructure) projects but no new projects appear to be on the anvil. Ambuja feels recent demand recovery is led by a combination of preelection spend, higher govt. spend ahead of fiscal-yr closure & beneficial impact of the stimulus package. The Co expects industry growth in CY09E to be ~6-8%.

* Pressure on local prices by end-09; exports already weak
Barring any seasonal dip during monsoon months, Ambuja expects domestic cement prices to be stable until 4Q CY09. The Co feels there is high visibility on new capacity additions of ~30mn tpa across the industry through CY09. However, meaningful supplies from these are likely only by 4Q. On the export front, Ambuja said export cement prices are already down to ~US$45-50/t vs ~US$60/t last yr.

* Lagged benefit of falling coal prices for Ambuja
Ambuja has used relatively high cost coal inventory through the Jan-Mar ’09 quarter. The benefit of falling coal prices for the Co may be visible only from 2Q CY09, unlike other majors that may witness lower energy prices in Jan-Mar qtr.

* Other tidbits: Cochin jetty; expansions; stake creep-up
Ambuja’s captive jetty at Cochin (~0.5mn tpa handling capacity) is almost ready. The Co’s CY09 capex budget is frozen at ~Rs14-15bn; the Co expects to commission its Bhatapara expansion by mid-CY09 while the Himachal expansion may scrape thru with end-CY09 commissioning. In our assessment, Holcim is unlikely to seek significant stake increases in Ambuja in the current environ. We maintain underperf rating on unexciting CY09 outlook & relatively high valuation.

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