STOCK PITCH – SHREE CEMENT 9th Feb,2017

Shree Cement is a Buy | Target: 21424, Current: 15870 Highest 10 year Sharpe Ratio among peers Strong Past Track Record Favourable Macroeconomic Environment in longer term Under-priced Stock Highest operating margin leading to higher PE multiple Strong Business Fundamentals Trend Analysis: Stock trading below 150 day moving average BUY SHREE CEMENT

Indian macroeconomic environment favorable for cement industry Infra Spending as % of GDP Power, Roads, Railways, Irrigation, Urban Infra Cyclical Industry Infra spending to aid growth Housing major demand driver Demonetization effect not as severe as anticipated Allocation increased by 39% to INR 290 billion Rural Development ministry budget up by 10% Strong push in Budget 2017 Demand triggering higher capacity expansion and operating rates

Shree Cement best positioned among peers to capitalize on favorable trends in the industry Shree Cement has highest operating margin driven by lowest material costs ACC Ambuja S&P BSE Ultra Tech Shree Cement Shree Cement delivered higher rewards per risk over past 10 years P/E Price Shree Cement 43.9 15850 Industry 51.5 18590

Operating Margin Rates Shree Cement undervalued as per FCFE valuation Cost of Capital Current ratio of 4.95; expected to go up-to 15.63 which is Ultratech’s ratio. No investment in terminal stage. High gestation period High terminal ROIC of 16% as per balanced model The stock is a Long term Buy as per FCFE and P/E estimates. Estimates go below current levels on assumption of worst case short term revenue growth of 6%. Revenue Growth Rates Operating Margin Rates Sales to Capital Assumed 3 stages of revenue growth Current growth of 16% for 6 years, intermittent rate of 5% for last 3 years and terminal economic growth of 2% Risks of delayed implementation, inter-linkage with GDP growth, seasonal and cyclical Current Cost of Capital of 15.28% At mature stage, cost of capital is that of market investment (8.82%) Change in company beta value with maturity and change in market risk not taken into consideration Shree cement has best in class op. margin rate of 25.86% At terminal stage, the margin is estimated to be 20.12% (Ultratech) Sustainability of cost advantages High utilization even after expansion Est 13895 15870 21424 Defensive Actual Balanced 15870 21424 Current Stock Price Predicted Stock Price 74.1% Percentage underpriced

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Back Up: Regional Demand

Indian macroeconomic environment favorable for cement industry Infra Spending as % of GDP Power, Roads, Railways, Irrigation, Urban Infra Cyclical Industry Infra spending to aid growth Housing major demand driver Demonetization effect not as severe as anticipated Allocation increased by 39% to INR 290 billion Rural Development ministry budget up by 10% Strong push in Budget 2017  Government Mind