Analyst:

Khandakar Safwan Saad

safwan@bracepl.com (880) 173 035 7779

HeidelbergCement Bangladesh Limited

DSE: HEIDELBCEM Bloomberg: HEID:BD
Company Summary 52-week Price Range (BDT) Current Price (BDT) [Aug 8, 2011] 11-month Fair Value (BDT) Price Return Dividend Yield Total Return Number of Shares MM Market Cap BDT MM Free Float Average Daily Turnover BDT MM (LTM) Revenue & Profit (BDT MM) Total Revenue Operating Income Net Income Margin Gross Margin Operating Margin Net Margin Growth Revenue Growth Gross Profit Growth Operating Profit Growth Earning Growth Per Share (BDT) EPS DPS BVPS NOCF/share Cash Flow (BDT MM) Operating Capex Dividend Valuation P/E P/B EV/EBITDA Miscellaneous ROE ROA Debt/Equity Debt/Asset Net Debt (BDT MM) Payout Ratio Capacity Installed Capacity '000 T Production '000 T Capacity utilization 2010A 2011E 2,515 -4,289 3,024 3,140 3.8% 1.8% 5.6% 5.7 17,086.7 39% 52.5 2012E

Rating: SECTOR PERFORM 11 Month Fair Value Estimate: BDT 3,140 per share August, 2011

HeidelbergCement Bangladesh Ltd. (HCBL) is one of the largest cement manufacturing company in Bangladesh with 11% market share (2nd). It is operating as a subsidiary of HeidelbergCement Group (Germany); the group holds 61% stake in the shareholding structure of HeidelbergCement Bangladesh. HCBL has an annual installed capacity of 2.1m tonnes of cement in two plants in Dhaka and Chittagong. By the end of this year, additional capacity of 0.75m tonnes will be added. The company produces cement under two brand names, RubyCement and ScanCement.

8,321.8 9,578.9 11,305.0 1,409.2 1,198.9 1,282.6 998.7 1,083.2 1,132.0 2010A 23.7% 16.9% 12.0% 2010A 15.5% 10.1% 5.1% 17.4% 2010A 176.8 43.0 841.8 213.4 2010A 2011E 19.0% 12.5% 11.3% 2011E 15.1% -7.6% -14.9% 8.5% 2011E 2012E 17.7% 11.3% 10.0% 2012E 18.0% 9.8% 7.0% 4.5% 2012E

We update coverage of HeidelbergCement Bangladesh Limited with a SECTOR PERFORM rating and a 11-month fair value of BDT 3,140 per share. Our valuation is based on DCF and relative valuation method. Our fair value implies a P/E multiple of 16.4x over the 2011E EPS and EV/ EBITDA multiple of 8.8x relative to 2011E EBITDA. With current market price of BDT 3,024 per share, our fair value will provide a total return of 5.6%, including expected dividend yield of 1.8%.
Our recommendation also considers the sound business model of the company and the outlook of the sector. Cement sector posted 22% and 19% growth in the last two years. Given that the government has undertaken a number of massive infrastructure projects and target real GDP growth rate has been set at a higher level, cement sector is braced for strong growth in the coming years. In order to maintain the market share (or increase it), HCBL has already planned for capacity expansion. Other investment positives include: HCBL is currently trading at a P/E multiple of 15.8x based on 2011E EPS and 15.1x based on 2012E EPS. Current EV/EBITDA stands at 8.4x relative to 2011E EBITDA and 8.0x relative to 2012E EBITDA. HCBL is a cash rich company with little leverage. Net Cash balance totaled BDT 2.5b as on Dec 30, 2010. Since the interest rate in the economy is on the rise, companies with huge positive net cash balance, such as HCBL, will benefit. Interest-bearing debt totaled BDT 155.8m at the end of 2010. Expected dividend yield for 2011 final dividend is 1.8%. HCBL has been one of the most resilient stocks in the recent market correction. The general index of Dhaka Stock Exchange (DGEN) declined 24.5% in 2011 (YTD), while Heidelberg retraced 17.1%. It also outperformed the market in the last three years return.
Figure: Price Performance of Heidelberg since 2010
4400 4000 3600
Price, BDT

191.7 200.3 53.0 58.0 990.5 1,137.8 183.0 317.5 2011E 2012E

1,205.8 1,034.1 1,794.1 (1,200.0) (400.0) (200.0) (243.0) (299.5) (327.7) 2010A 17.1x 3.6x 8.0x 2010A 23% 15% 3% 2% 2011E 15.8x 3.1x 8.4x 2011E 21% 14% 3% 2% 2012E 15.1x 2.7x 8.0x 2012E 19% 13% 2% 2%

600.0 500.0 400.0 300.0 200.0 100.0 .0 Mar-10 May-10 Jul-10 Sep-10 Turnover Dec-10 Price Feb-11 Apr-11 Jun-11
Turnover, BDT MM

3200 2800 2400

(2,340.5) (2,103.4) (2,438.0) 24% 28% 29% 2010A 2011E 2012E 2,100.0 2,100.0 2,868.0 1,334.6 1,512.0 1,749.5 63.6% 72.0% 61.0%

2000 Jan-10

Source: Company Data, BRAC EPL Research, August 2011

Source: DSE, BRAC EPL Research, August 2011

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Review of 2010 results HeidelbergCement Bangladesh Limited (HCBL) achieved 15.5% revenue growth (the highest in four years) and 17.4% net profit in 2010. The revenue growth, from BDT 7.2b in 2009 to BDT 8.3b in 2010, entirely generated from higher sales volume (+15.3%); average selling price was BDT 6,211 per ton in 2010, up by only 0.2% from 2009 price level. The gross profit margin however shrunk from 24.9% in 2009 (the highest in a decade) to 23.7% in 2010. Increased expenditure for clinker and iron slag (accounting for more than 83% of the raw materials) resulted into higher cost of goods sold (COGS) and lower gross profit growth of 10.1%. Operating profit growth was even lower at 5.1% in 2010 as operating margin went down by 1.7% in 2010. Operating expense to sales increased from 6.3% in 2009 to 6.8% in 2010 as the company had to pay VAT on technical knowhow fee in 2010. Technical Know-how fee is charged at 3% on previous years revenue while HCBL had to pay additional 28% VAT on the fee in 2010. Financial income compensated for the increase in operating expense and COGS. Net financial income in 2010 was 2.1% of sales (which was 0.9% in 2009); it resulted into 12.6% growth in Profit before tax. Lower increase in deferred tax compared to 2009 helped the company post BDT 998.7m in profit after tax (PAT), 17.4% higher than 2009. Net profit margin in 2010 was 12.0%, the highest for the company since 2001. Table 1 below shows the common size income statement for the last three years.
Table 1: Common Size Income Statement (2008-2010) Details 2008 2009 2010 Turnover 100.0% 100.0% 100.0% Cost of goods sold -80.8% -75.1% -76.3% Gross Profit 19.2% 24.9% 23.7% Operating Expenses -5.8% -6.3% -6.8% Profit From Operation 13.3% 18.6% 16.9% Net Financial Income -0.1% 0.9% 2.1% Profit before Tax 13.3% 19.5% 19.0% Provision for Tax -4.0% -7.7% -7.0% Net Profit 9.3% 11.8% 12.0%

HCBL reported 15.5% revenue growth and 17.4% earnings growth in 2010. Increase in volume sales was the main driver behind the growth

Higher financial income and lower increase in deferred tax, compared to 2009, help to boost the net income in the last year

Source: BRAC EPL Research, August 2011

2010 Performance compared to our Estimates In 2010, sales volume increase was more and price increase was less compared to our estimates. Overall there was a positive impact and actual sales was 1.4% higher than projected. However, net profit was 16.4% lower than expectation. The major reason behind such difference is that of deferred tax. Effective tax was 7% of sales, compared to 4.3% projected as shown in common-size analysis in Table 3. COGS to sales and operating expense to sales were slightly higher than our estimates for 2010. Financial income also exceeded expectation; it was 2% of sales in 2010 compared to 1.5% in 2009.
Table 2: Forecast & Actual 2010 Sales Cost of Goods Sold Gross Profit Sales, General & Admin Exp Operating Profit (EBIT) Financial Income Financial Expenses Profit before Tax Provision for Tax Net Profit
Source: BRAC EPL Research, August 2011

Forecast 8,207.4 6,237.6 1,969.8 533.5 1,436.3 121.6 13.9 1,544.0 -349.0 1,194.9

Actual Deviation 8,321.8 1.4% 6,348.4 1.8% 1,973.3 0.2% 564.1 5.7% 1,409.2 -1.9% 162.9 34.0% -8.4 n/a 1,580.5 2.4% -581.8 66.7% 998.7 -16.4%

Table 3: Common-size analysis Details Sales Cost of goods sold Gross Profit Operating Expenses Profit From Operation Interest Expense/(gain on reversal) Financial Income Profit before Tax Provision for Tax Net Profit
Source: BRAC EPL Research, August 2011

Forecast 100.0% 76.0% 24.0% 6.5% 17.5% 0.2% 1.5% 18.8% -4.3% 14.5%

Actual 100.0% 76.3% 23.7% 6.8% 16.9% -0.1% 2.0% 19.0% -7.0% 12.0%

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Global Cement Market in 2010 Global cement consumption (in tonnes) in 2011 crossed 3b mark for the first time. Cement consumption was around 3.2b tonnes in 2010, registering 9.9% growth over 2009s demand of 2.9b tonnes. This years growth was the highest in the last five years; during the period, growth went down to 2.4% in 2008 following global financial crisis, before improving to 5.9% in 2009. Chart 1 shows the trend in global cement consumption for the last five years.
Chart 1: Global Cement Consumption
3,400

Global cement consumption showed 9.9% growth in 2010, the highest growth in the last five years

9.6% 7.6% 5.9%

9.9%

10.0%

3,200 3,000
2,800 2,600 2,400 2006

8.0%
6.0% 4.0% 2.4% 2.0% 0.0%

2007

2008

2009

2010

Total Cement Consumption (LHS)

Growth (RHS)

Source: Global Cement Report by CEMNET (www.cemnet.com)

Growth in consumption in China was the major driver behind global growth; the country alone accounts for 56% of the global consumption

The growth in the last two years was mainly driven by China, which accounted for 56% of the total consumption in the world in 2010. Chinas consumption was 1.8b tonnes and 1.6b tonnes respectively in 2010 and 2009, achieving doubledigit growth rate of 17% and 16% respectively in those two years. Growth in 2010 was only 3% for all other countries apart from China, following negative growth in 2009. Chart 2 shows the cement consumption for China and rest of the world.
Chart 2: Consumption of China vs Rest of the World
2,000

1,800
1,600

1,400
1,200

1,000
2006 2007 China 2008 Ex-China 2009 2010

Source: Global Cement Report by CEMNET (www.cemnet.com)

Global cement consumption patterns have changed significantly following the global financial crisis. Most of the growth have centered within the Asia continent. In fact, North America, South America and Europe, all registered negative growth in the last two years (shown in table 4).
Table 4: Total Growth in last two years by major continents: Continent Asia North America South America Europe Growth 27.9% -30.2% -12.7% -8.5%

Cement consumption registered annual growth rate of over 7%* in the last decade, which was much higher compared to long term annual growth rate of 3.5% (over previous 30 years)*. However outlook for the current (2011-2020) decade is not as strong as that of the closing decade. Accountability for global warming and limitation over CO2 emissions may lower the level of cement production in the future. However, much will depend upon China with urbanization level reaching 50% in 2010 and cement consumption per capita of over 1,000 kg, the high growth (in recent years) may slow down in this decade.
* According to GLOBAL CEMNET REPORT (www.cemnet.com)

Source: Global Cement Report by CEMNET (www.cemnet.com)

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Global Cement trade, according to the Global Cement Report by CEMNET, continues to remain low as most of the countries rely on local production. Cement trade was only 5% of total cement production in 2010; it was 6% in 2008. Turkey was the top exporter in 2010. It produced 62m tonnes of cement, out of which, 46m tonnes was consumed domestically while 16m tonnes was exported. Bangladesh, which relies totally on imported clinker, was the largest importer in 2010 with 12.5m tonnes of clinker imported. The country imported only 5.0m tonnes of clinker in 2008. Such growth in clinker import was mainly due to booming demand in the local market. Domestic Market Bangladesh is self-sufficient in fulfilling local demand for cement. In fact, the installed production capacity is much higher than the local demand; the idle capacity can meet the local demand up to 2015. However, Bangladeshi companies, except Lafarge Surma Cement, does need to import all the raw material for cement manufacturing, including clinker, gypsum, fly ash and iron slag. These are mainly imported from Thailand, Malaysia, Korea and India. In fact, Bangladesh was the largest importer of clinker globally in 2010. There are around 55 cement-manufacturing companies, out of which 35 are in commercial production, including five multinationals. The annual installed production capacity of the sector is 18.5m tonnes. Cement consumption was around 12.5m tonnes** in 2010, compared to 10.5m** tonnes in 2009 and 8.6m tonnes in 2008. Last year consumption was little over 60% of the total installed capacity. Though there is over-capacity in the sector, the market demand is almost equal to the effective capacity during peak season. Peak season is during the winter while demand goes slow during the rainy season. Revenue peaks from November to April while it falls from May to October. Even with the over-capacity, many big players are going for capacity expansion. The sector experienced 22% and 19% growth in the last two years (as shown in table 5) which prompted many companies to increase capacity to meet future demand. The growth in 2010 and 2009 followed a period of slow and low growth in 2007 and 2008 when the army-backed caretaker government was in power. There were very few projects undertaken by the Real Estate sector while the government hardly indulged in any infrastructure development activity. The environment changed with the new government coming into power in late 2008. Among local brands, Shah Cement, Meghna Cement, Crown Cement, Fresh Cement, Premier Cement and Seven Circle Cement are popular across the country. The five multinational cement companies in operation are: Holcim, Heidelberg, Lafarge Surma, Cemex and Emirates. However, Aditya Birla Group of India has recently entered the Bangladesh market with their brand UltraTech. It also acquired Dubai-based ETA Star Cement Company in April last year, and, by extension, the local operation of Emirates Cement in Bangladesh. Outlook for the sector
Construction & Real Estate accounts for 8% & 6.5% of the nominal GDP; the two achieved 12.5% & 8.5% annual growth over the last decade.

Turkey was the top exporter in 2010; Bangladesh, relying mostly on imported clinker, was the largest importer in 2010 with 12.5m tonnes of clinker import

Cement consumption was about 12.5m tonnes in 2010, 19% up from 10.5m tonnes in 2009. Total consumption is about 60% of the total capacity

Table 5: Cement Consumption Year Demand Growth 2005 7.6 2006 8.5 11.8% 2007 8.2 -3.5% 2008 8.6 4.9% 2009 10.5 22.1% 2010 12.5 19.0%
Source: Annual Report

Heidelberg, Lafarge, Holcim, Cemex and UltraTech/Emirates are the multinational brands that are operating in the local market

Construction and Real Estate Activities are the two major drivers of cement consumption. Construction accounts for 8% of the nominal GDP of the country while Real Estate accounts for 6.5%. The two sectors achieved annual growth of 12.5% and 8.5% respectively over the last decade. Annual Real GDP growth was close to 6% in the same period. In the current decade (2011-2020), Bangladesh government has planned to achieve double-digit GDP growth rate by the end of 2017. In that regard, both Construction and Real Estate sector are poised for much higher growth in the following years. Construction activity is expected to increase further as the government looks set to take some massive infrastructure projects. Table 6 on the following page shows some of the major infrastructure projects.
** According to Annual Report of HeidelbergCement Bangladesh

Government has planned to achieve much higher (Real GDP) growth rate in the current decade which will boost higher growth for the sector

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Table 6: Major Infrastructure Projects Name Completion Date Padma Bridge 2015 Deep Sea Port 2015 Dhaka Elevated Expressway 2014 Metro Rail N/A Bangabandhu Int. Airport N/A
Source: BRAC EPL Research, August 2011

Cost Size USD 2.9b 6.2km USD 2.0b N/A USD 1.2b 21.0km USD 1.7b 21.5km N/A N/A

Despite recent growth in demand, per capita cement consumption remains very low compare to the world; low urbanization and high poverty rate may have resulted into such low consumption

Apart from infrastructure, industrialization, urbanization and housing are the other major factors that have an impact on demand for cement. Urbanization rate is only 28%, compared to 31% in India and 50% in China while poverty rate is around 31.5% (2010). Per capita cement consumption is 78kg per capita* which increased three fold in the last decade from 22 kg per capital in 1999. However it is still very low compared to the world average consumption of 260 kg per capita. China leads the pack with over 1000 kg per capita consumption while it is only 150 kg for India. Low urbanization rate and the high poverty rate are possible cause for lower consumption but it presents the local market with good growth prospect. Increase in urbanization and lower poverty level in coming years will increase the domestic cement consumption.
Table 7: Cross Country Details (2010 Data) Indicators Bangladesh Population 160.0 Population Density (people per km) 1084 Population Growth 1.38% Urbanization 28% Urbanization rate Per Capita Cement Consumption
Source: BRAC EPL Research, August 2011

India 1,210.2 368 1.34% 30% 2.40% 150kg

China 1,339.7 140 0.51% 50% 2.70% 1000kg

3.50% 78kg

Bangladesh is among the most densely populated countries in the world. Its population density of nearly 1100 people per km presents key issue regarding housing and shelter. High population density will prompt high rise landmarks to accommodate the growing population. Given the outlook of the local market, the demand for cement will be robust in the current decade, unlike the global scenario. HeidelbergCement Competition HeidelbergCement has the second largest market share (of 11%) in the local market. Shah Cement, the main competitor of HCBL, is the market leader with 14% market share. Holcim (8%), Meghna Cement (7%) and Lafarge (7%) make up the top five list as shown below. Akij Cement is also one of the top producer, however no data is available regarding their market share.
HCBL has the 2nd largest market share (of 11%) and production capacity (of 2.1m tonnes) after Shah Cement , a local producer

Table 8 lists all companies with annual capacity beyond 1.0m tonnes. HCBL is only second to Shah Cement; it has an annual capacity of producing 2.1m tonnes of cement compared to 2.3m tonnes by Shah Cement. However, HCBL
Table 8: Production Capacity (in tonnes) Company: Shah Cement HeidelbergCement Akij Cement Holcim Cement Lafarge Surma Cement Seven Rings Cement Premier Cement Meghna Cement Listed No Yes No No Yes No No Yes Annual 2.3m 2.1m 1.3m 1.3m 1.2m 1.2m 1.2m 1.0m Daily 6,200 5,800 3,600 3,600 3,400 3,400 3,400 2,800 Table 9: Market Share Shah Cement HeidelbergCement Holcim Cement Meghna Cement Lafarge 14.0% 10.7% 8.0% 8.0% 7.4%

Source: BRAC EPL Research, August 2011

Source: BRAC EPL Research, August 2011

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
will increase the production capacity by additional 0.77m tonnes by the end of this year. Shah Cement has also reportedly planned to increase their capacity. Some of the other local manufacturers, including Meghna Cement and Akij Cement. HCBL will face challenge to maintain or increase their market share amid such competition. Moreover pricing will be more competitive as the companies may find it difficult to raise price with the overcapacity of the sector. Lafarge Surma Cement HCBL and other cement companies will also face competition from Lafarge Surma Cement. Lafarge is the only exception to all other cement companies in that they manufacture the clinker instead of importing it. The company has set up a mining factory in India; they extracts lime from their own mine in India. The lime is transferred to Bangladesh and the company uses that to produce the clinker. Operation of the mining factory in India has been suspended in February 2010 following a legal petition filed by local Indians on environmental issue. However the Supreme Court of India recently passed the verdict in favor of Lafarge. Soon, Lafarge will start to produce clinker again. It will have a great competitive advantage over others as other companies will incur higher cost for clinker import in coming years. Local currency (BDT) has been depreciating significantly against dollar (USD) in recent times. Moreover rise in oil price in the international market is also likely to increase the shipment cost of transporting the raw materials. Akij Cement HCBL may also face competition from Akij Cement which is the first cement company in Bangladesh (and the only one) to produce harmless fly-ash-free cement. The company set up the countrys first Vertical Roller Mill technology in 2009 in order to gain market share. Because of absence of fly-ash in their cement, their product has gained popularity among the potential buyers. Key Challenge of tackling depreciating BDT The key challenge that HCBL will face in coming years is to maintain a steady and low COGS level. Raw material cost accounts for 85% of the total COGS and most of them (about 95%) are imported from other countries; HCBL imports mainly from Thailand. In times of depreciating local currency (BDT), HCBL will have to make additional import payment for most of their raw materials apart from increase in raw material cost. Under such circumstances, the gross margin will shrink to result into lower operating margin. Moreover, because of the surplus capacity of the sector, HCBL will find it difficult to pass on the increase in raw material cost to the consumers. Increase in raw material price in the global market will impact all the global companies but depreciating local currency will impact the local companies only. In fact, all the cement manufacturers in the country will face the same problem apart from Lafarge. In 2010, HCBL was able to increase price only by 0.2%.

Lafarge is the only company that manufactures clinker rather than importing it

Akij is the only company to produce fly-ash-free cement in the market

Depreciating BDT will result into higher import payment for raw materials; it already depreciated significantly in 2011

Projected Operating Performance

Steady Growth in Sales Revenue Revenue of HCBL is expected to grow at par with the industry forecast as it will focus on maintaining their existing market share. The cement industry is braced for faster growth in this decade; demand is expected to continue recent trend and post double-digit growth for the coming years. Moreover, per capita cement consumption is very low in Bangladesh (it is half of that in India); it will mean higher growth opportunity. If we are to assume that consumption in Bangladesh will reach the current consumption level in India in six years time, the sector will experience about 14% annual growth over the next six years. Capacity expansion by local companies do suggest that such high growth in possible. Increase in urbanization, population and income level and higher governments spending for infrastructure are expected to drive domestic demand.

Assuming cement consumption in Bangladesh will reach the current consumption level in India in six years time, the sector will experience 14% annual growth over the projected period

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Table 10: Growth Ratios Revenue Volume Price Gross Profit Operating Profit Earnings 2006 36.9% 23.8% 10.6% 67.5% 147.5% 273.0% 2007 12.3% 0.8% 11.4% 24.7% 24.7% 19.2% 2008 13.3% 4.0% 9.0% 0.8% -1.1% -4.7% 2009 13.2% 9.7% 3.2% 46.8% 57.8% 43.6% 2010 2011E 15.5% 15.1% 15.3% 12.8% 0.2% 2.0% 10.1% -7.6% 5.1% -14.9% 17.4% 8.5% 2012E 18.0% 15.7% 2.0% 9.8% 7.0% 4.5% 2013E 17.4% 13.9% 3.0% 19.4% 19.9% 20.1% 2014E 13.4% 10.1% 3.0% 13.6% 13.9% 15.7% 2015E 15.6% 12.2% 3.0% 15.5% 15.2% 16.7% 2016E 13.4% 10.1% 3.0% 18.7% 21.7% 24.3%

Source: Annual Report, BRAC EPL Research, August 2011

HeidelbergCement registered 17.9% annual revenue growth over the last five years. We projected revenue to grow at 15.5% annually over the next six years. The company is currently undergoing expansion to support future sales growth. Much of the growth is expected to generate from higher sales volume rather than increase in selling price. In 2010, the company achieved 15.3% volume growth while capacity utilization was 64%. We expect the volume growth to fall slightly in 2011 before picking up again in 2012; once capacity is enhanced by the end of 2011, volume growth will pick up.
Domestic demand is expected to drive volume sales of HCBL. Price increase will be minimal because of overcapacity in the market and competition

HCBL was able to increase the selling price in past years. Average annual price increase was 6.8% over the last five years. Price increase was even 15.2% and 10.6% respectively in 2005 and 2006 but has since slowed down; in 2010, it was very marginal. In light of overcapacity and increased completion, we do not expect HCBL to increase price significantly in the following years. We projected 2% price increase in 2011 and 2012. Afterwards we assumed 3% price increase in the next four years as overcapacity situation will improve in the domestic market. However, it is unlikely that 2% and 3% price increase will cover increase in raw material cost, which will result into shrinking gross margin. Expansion Program

Table 11: Capacity (million tonnes)

Year Installed Production Utilization

2004 2005 2006 2007 2008 2009 2010

1.62 1.62 1.62 1.62 2.10 2.10 2.10

0.81 0.82 1.01 1.02 1.06 1.16 1.33

49.9% 50.5% 62.2% 62.9% 55.1%* 55.4% 63.6%

HCBL has planned expansion for its cement grinding plant at Chittagong. 768,000 metric tonnes per annum will be added to the existing capacity at an estimated cost of BDT 1.3b. The project will be financed through companys own source and is expected to be completed by the end of 2011. The total capacity of the company will be 2.87m tonnes per annum by the end of the year. Annual capacity utilization was only 64% in 2010, which is the highest rate the company has achieved in all years of operation. The utilization is much higher during the peak season which actually prompted many companies to build capacity. Table 11 shows the capacity utilization over the last seven years. We further assumed that the company will have to increase capacity soon to meet the growing demand. With the projected growth, capacity utilization will reach 77% by the end of 2014. We assumed additional 700,000 tonnes will be added by the end of 2015 at an estimated cost of BDT 1.5b. Gross Margin, COGS and Raw Material Cost HCBL achieved 24.9% gross margin in 2009, the highest in the last decade (see table 12 on page 8). In 2010, the margin shed by 1.2% to reach 23.7%. Average gross margin in the last five years was 21.7%. Exchange rate (USD to BDT) was relatively stable** during the period. As a result, any fluctuation in gross margin resulted from inability to pass on the increase in input cost to the consumers. However, exchange rate is not expected to remain stable in the future and as such there will be more volatility in the cost of sales. In the first half of 2011, the local currency (BDT) already depreciated about 6%. COGS increased to 81.6% in the same period as HCBL had to pay more for import of raw materials; gross margin shrank to 18.4%. Projected gross margin is about 18% in the next six years compared to 22% in the last five years.
** Chart 4 on page 10 shows the historical exchange rate for USD:BDT

* 2008 capacity utilization adjusted for time weighted installed capacity for that year Source: Annual Report,, August 2011

Projected gross margin is about 18% in the next six years compared to 22% in the last five years

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Table 12: Margin Ratios Gross Profit COGS Operating Profit Op. exp. To sales Net Income EBIT EBITDA 2006 19.4% 80.6% 13.8% 5.2% 10.4% 13.9% 17.8% 2007 21.5% 78.5% 15.3% 5.7% 11.1% 15.3% 18.9% 2008 19.2% 80.8% 13.3% 5.3% 9.3% 13.4% 17.0% 2009 24.9% 75.1% 18.6% 5.3% 11.8% 18.6% 22.2% 2010 23.7% 76.3% 16.9% 6.0% 12.0% 16.9% 20.1% 2011E 19.0% 81.0% 12.5% 6.0% 11.3% 12.5% 15.6% 2012E 17.7% 82.3% 11.3% 5.8% 10.0% 11.3% 14.2% 2013E 18.0% 82.0% 11.6% 5.9% 10.2% 11.6% 14.1% 2014E 18.1% 81.9% 11.6% 5.9% 10.5% 11.6% 14.1% 2015E 18.0% 82.0% 11.6% 5.9% 10.6% 11.6% 14.1% 2016E 18.9% 81.1% 12.5% 5.8% 11.6% 12.5% 14.7%

Source: Annual Report, BRAC EPL Research, August 2011

We expect the COGS margin to remain high in current year as well as in coming years. We forecasted exchange rate to reach 80 (USD:BDT=1:80) and COGS to remain around 82% in the next six years. Higher COGS (relative to 2010) will result into negative gross profit growth in 2011. Bulk of the COGS generate from raw material cost which accounted for 87% of COGS in 2010. Chart 3 shows the components of raw materials in 2010. Apart from packing materials, all others are imported. Operating Margin
Chart 3: Raw material components
Limestone & Fly Ash 5% Packing Materials 7%

Gypsum 3%

Iron Slag 11%

Clinker 74%

Operating margin is projected to decline also mainly because of lower gross margin. However, operating expense to sales is expected to improve with higher volume sales and higher capacity utilization. With higher output, fixed costs will be spread over additional units. In 2010, operation expense increased significantly due to higher administrative expense. Last year, HCBL had to pay VAT on technical know-how fee which was introduced in the last year. Technical know-how fee is payable to HeidelbergCement Asia Pte @ 3% of net sales of prior year. In addition, HCBL paid 28% VAT on the fee in 2010. As a result operating expense to sales increased from 5.3% in 2009 to 6.0% in 2010. In 2011, operating profit growth is expected to be negative following negative gross profit growth (see Table 10 on page 7). Financial Income HCBL has build up significant cash balance over the years. Cash & cash equivalent stood at BDT 2.5b in 2010 out of which BDT 2.2b was invested in Fixed Deposit Account. The company received BDT 163.2m as interest income in 2010 which was 2% of net sales revenue. Moreover, interest rate in the local economy has gone up in 2011. Because of liquidity shortage in the money market and tighter monetary policy undertaken by the central bank (to tackle inflation), interest rate is expected to remain high in the coming years. HCBL will benefit from such interest rate hike as it has little debt. It had short term loan of BDT 17.9m outstanding in the 2010 balance sheet. Financial income to sales ratio will increase in the following years which will boost net profit margin. Despite lower gross profit and operating profit margin, net income margin is expected to improve. Current Tax & Deferred Tax We have applied corporate tax rate of 24.75% in calculating current tax. The actual corporate tax rate is 27.5% for comparable listed companies with further 10% rebate when the company pays out more than 20% cash dividend on their paid-up capital.

Source: Annual Report, 2011

HCBL earned BDT 163.2m as interest income in 2010; HCBL will benefit more from its rising cash balance as interest rate in the economy is expected to increase

Effective tax rate was much higher in 2009 and 2010 due to creation of deferred tax liability in the balance sheet

The effective tax rate in last two years was much higher than the current tax rate. HCBL incurred BDT 203.3m and BDT 132.0m as deferred tax in 2009 and 2010 respectively, which resulted in an effective tax rate of 39.4% and 36.8% respectively. In our model we projected additional deferred tax of BDT 300m in 2013 and 2014 when we projected further capacity expansion for HCBL.

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Low Pay-Out Ratio and High Retained Earnings HCBL has maintained a low pay-out ratio of 25% on average over the last six years. In 2010, the company paid BDT 43 per share on face value of BDT 100, resulting in a market yield of only 1.18%. As a result of the low pay-out ratio, the reserve balance increased five times in the last six years - from BDT 720.5m to BDT 3,6b. Free Float, Liquidity & Shareholding Structure
Table 13: Shareholding Structure Sponsor Portion 61% General Public 21% ICB 6% Other Institution 12%
Source: Annual Report, August 2011

HCBL has 39% free float according to the shareholding structure. Effective free float is slightly less (33%). State-owned Investment Corporation of Bangladesh (ICB) holds 6% of the outstanding shares of Heidelberg which are seldom traded. The average daily turnover of HCBL is BDT 21.1m (USD 0.3m) YTD compared to BDT 83.8m (USD 1.1 million) in 2010. The turnover value went down in 2011 as the stock market experienced high volatility in the period. Some Key On-going and Up-coming Projects

CHITTAGONG PORT FLYOVER: The government has taken steps to build

the first ever flyover of Chittagong with length of 978 meter. RubyCement will be exclusively used for the project and 10,000 tons are expected to be consumed.

JATRABARI - GULISTAN FLYOVER: The implementation of the 9 km long

flyover has started in mid 2010. The flyover construction is aimed at reducing traffic congestion of the southern part of the Dhaka city and to establish improved and faster road connectivity with 30 districts, including Chittagong. ScanCement will be used non-exclusively.

NEW MOORING CONTAINER TERMINAL (PHASE 2): Implementation of

Back up facilities of New Mooring Container Terminal of Chittagong port already started from August 2010. RubyCement will be exclusively used for the project and 30,000 tons are expected to be consumed.

4 LANE DHAKA CHITTAGONG HIGHWAY: The government has taken

steps to widen the existing 200 km long 2 lane Dhaka Chittagong highway to 4 lane in order to increase efficiency of the road transport and to optimize the utilization of the Chittagong port. However, implementation of the project is yet to commence. RubyCement will be used in the expansion project.

BAHADDARHAT FLYOVER: The second planned flyover of Chittagong city

will be constructed in the Bahaddarhat area, which is beside the citys heavy industrial area, Kalurghat. The 1.35 km long flyover is expected to be completed by December 2012. RubyCement will be used exclusively in the project. Investment Risks There are a number of risks associated with HeidelbergCement:

Exchange Rate movement and Raw Material Cost: Raw material cost
accounts for 87% of COGS and most of it is imported. Any adverse movement in the exchange rate will increase the import cost and lower the gross margin of Heidelberg. Chart 4 in the following page shows the historical exchange rate for USD:DBT since 2007. After remaining stable for many years, USD appreciated almost 6% in 2011. Oil price in the

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Chart 4: Historical Exchange Rate for USD:BDT
76

74

72

70

68

66

Source: BRAC EPL Research, August 2011

international market will also have an impact in raw material cost as shipment cost will increase with higher oil price.

Overcapacity in the Local Market: In 2010, total cement production by all the
manufacturers was about 60% of their total installed capacity, despite 22% and 19% growth in consumption in the last two years. Many of the manufacturers, including Heidelberg Cement and Shah Cement, have planned for capacity expansion. As a result, higher volume growth in the following years may still result into under utilization of the capacity. In that case the company will find it difficult to increase selling price of their products.

Delay in Implementation of Infrastructural Project: The major infrastructure

projects, that the government has planned to implement in the next three four years, may be delayed. As a result there can be time lag in revenue growth for the sector. Valuation We have estimated 11-month forward fair value of HeidelbergCement Bangladesh at BDT 3,140 per share by the end of June 2012. With current market price of BDT 3,024 per share, the fair value implies 3.8% capital gain. Together with expected dividend yield of 1.8%, total return will be 5.6% by June 2012. (Valuation method is given in the following page). Half-Year 2011 Results
Revenue growth was 3.7% but net profit was 20.1% down in 1H2011; Gross margin shrank due to higher raw material cost

HeidelbergCement recently disclosed their half-yearly earnings for 2011. Revenue growth in the six month period was 3.7% compared to the same period last year while earnings posted 20.1% loss. COGS was 81.6% in 1H2011 compared to 74.0% in 1H2010, which resulted into negative growth of net profit. The company lost 7.6% gross margin owing to higher import payment of raw materials; local currency, BDT, depreciated about 6% in 2011. The company reported very high financial income during the period. Earnings from interest income in the first six-months of 2011 is close to total interest income earnings in whole year of 2010. The company benefitted from the high interest level in the economy and from its BDT 2.5b cash balance at the end of 2010. Its cash balance reached BDT 3.0b at the end of June 2011.

HCBL reported very high financial income in 1H2011 as high interest rate in the economy boosted their interest earnings

10

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Valuation Method We have used DCF valuation and relative valuation (Price/Earnings multiple based) in deriving the fair value of the HeidelbergCement Bangladesh. Our DCF valuation gave us a fair value per share of BDT 2,944 at the end of 2011. We have considered a discount rate of 16.0% and a terminal growth rate of 6.0%. We projected financial statement till 2016. Considering capacity enhancement in 2015, we assumed that the Free Cash Flow to Firm (FCFF) will grow at 10% in 2017 and 8% in 2018. Afterwards it will grow at the terminal growth rate of 6%.
Using DCF and relative valuation, we arrived at a fair value of BDT 3,140 per share at June 2012. With an estimated dividend yield of 1.8%, our fair price would provide a total return of 5.6% in eleven months, based on the current market price

For relative valuation, we have used valuations of other listed cement companies that are traded in Dhaka Stock Exchange (DSE). The average P/E and P/B of these cement companies is 25.2x and 7.1x respectively. Since the P/ B multiple is relatively high, we only referred to P/E multiple. Moreover we have used a P/E multiple of 15.0x, which is the historical average at which HCBL shares have traded (from 2006 onwards). Table 18 (on the page 12) shows the comparative companies while chart 5 (on page 12) shows the historical P/E multiple of Heidelberg. Based on estimated 2011 EPS of BDT 191.70, the relative price stands at BDT 2,875 per share. Using the average of the two values, the fair value of Heidelberg stands at BDT 2,910 per share at the end of 2011. With 16% discounting factor, the fair value stands at BDT 3,140 per share at June 2012. Our estimated fair price implies a trailing P/E multiple of 16.4x over 2011E earnings. With current price of BDT 3,024, the fair price implies 3.8% price return in the next eleven months. Dividend for 2011 is projected at BDT 53 per share, which will provide 1.8% dividend yield at the current market price. Combining the two, the total return is expected to be 5.6% in the next eleven months.
Table 14: Discounted FCF (BDT million) EBIT Cash Income Tax Add Depreciation Change in working capital Cash Flow from operation Capital Expenditure FCFF Terminal Value Net Cash Flow Discount rate Terminal growth rate No. of shares (millions) NPV per share (2011 end) -175.2 16.0% 6.0% 5.65 2,944 467.3 1,541.4 2011 296.7 292.0 1,024.8 -175.2 2012 317.5 327.5 2013 380.5 336.9 247.6 2014 433.6 375.3 342.2 2015 499.6 427.6 2016 608.1 441.6 2017 2018

1,198.9 1,282.6 1,537.4 1,751.7 2,018.7 2,457.0

(169.4) (425.3)

(47.6) (115.5)

867.3 1,741.4 2,035.7 1,899.1 2,175.0 467.3 1,541.4 535.7 1,699.1 1,975.0 2,172.5 2,346.3 24,870.7 535.7 1,699.1 1,975.0 2,172.5 27,217.0 14, 292.1 2,496.3 155.8 16,632.7

(1,200.0) (400.0) (200.0) (1,500.0) (200.0) (200.0)

NPV (2011 end): Cash & Cash Equivalent: Interest bearing Debt Total Equity Value:

Table 15: Relative Valuation 2011 Estimates EPS Multiple used Target Price Table 16: Fair Value Average of DCF and P/E multiple Fair Price at June, 2012 (adjusting for discounting factor for 6 months
Source: BRAC EPL Research, August 2011

Table 17: Fair Value and Return 191.70 15.0x 2,875 Fair Value (at June 2012) Current Market Price (Aug 7, 2011) Price Return Cash Dividend per share Dividend Yield 2,910 3,140 Total Return 3,140 3,024 3.8% 53 1.8% 5.6%

11

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Table 18: Comparative companies Market Price (BDT) ARAMITCEM 1,217.75 CONFIDCEM 177.60 LAFSURCEML 639.50 MEGHNACEM 211.40 MICEMENT 196.10 Average of multiples Cement Companies
Source: DSE, BRAC EPL Research, August 2011

EPS (BDT) 45.72 7.42 -45.86 9.02 7.37

P/E 26.6x 23.9x N/A 23.4x 26.6x 25.2x

BVPS (BDT)

P/B

85.84 69.43 76.30 29.84 61.39

14.2x 2.6x 8.4x 7.1x 3.2x

7.1x

MCAP (BDT MM) 1,875.3 6,659.0 37,134.9 4,756.6 19,610.0

* EPS figures based on latest quarterly reports for 2011

Chart 5: PE band (Trailing) for Heidelberg share

33.0 30.0 27.0 24.0

21.0 18.0
15.0 12.0 9.0 6.0 3.0 0.0

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jul-06

Jul-07

Jul-08

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Source: BRAC EPL Research, August 2011

Sensitivities We assess sensitivities of our valuation to key assumptions. DCF value is most sensitive to change in terminal growth rate and discount rate. With our key inputs (Terminal Growth 6% & Discount Factor 16%), per share value ranges from BDT 2,139 to BDT 6,617 for different combinations of terminal growth (4%8%) and discount rate (12%-19%) as shown in the table below. In case of P/E multiple valuation, we used 2011E EPS and 15x multiple. For various range of P/E multiple (7x - 23x) and different level of earnings estimate, per share price ranges from BDT 1,241 to BDT 4,740 as shown in table 20 in the next page. The different level of earnings around the base EPS of BDT192 is given by 2.5%, 5% and 7.5% standard deviation of the projected earnings.
Table 19: Implied Per Share Value at different Terminal Growth & Discount Rate
Terminal Growth Rate

4% 12% 13% 14% 15%

Discount Rate

5% 4,363 3,819 3,397 3,062 2,789 2,562 2,371 2,209

6% 4,864 4,175 3,660 3,261 2,944 2,685 2,470 2,289

Apr-11

Jul-11

Jul-09

Jul-10

7% 5,565 4,650 3,998 3,511 3,133 2,832 2,587 2,383

8% 6,617 5,315 4,448 3,831 3,370 3,012 2,726 2,494

3,987 3,542 3,187 2,899 2,660 2,458 2,287 2,139

16% 17% 18% 19%

Legend:
XXX XXX

Price within 52 weeks High-Low range Price range within key inputs

52 week high-low: Current Price:

2,515 4,289 3,024

12

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
Table 20: Implied Per Share Value at different projected EPS and P/E multiple
2011E EPS

177 7.0x 9.0x 11.0x 13.0x

P/E multiple

182 1275 1639 2003 2367 2732 3096 3460 3824 4189

187 1308 1682 2056 2430 2804 3177 3551 3925 4299

1241 1596 1951 2305 2660 3014 3369 3724 4078

192 1342 1725 2109 2492 2875 3259 3642 4026 4409

196 1375 1768 2161 2554 2947 3340 3733 4126 4519

201 1409 1812 2214 2617 3019 3422 3824 4227 4630

206 1443 1855 2267 2679 3091 3503 3915 4328 4740

15.0x 17.0x 19.0x 21.0x 23.0x

Legend:
XXX XXX

Price within 52 weeks High-Low range Price range within key inputs

52 week high-low: Current Price:

2,515 4,289 3,024

Price Performance relative to Index The two charts below shows the YTD price performance of HeidelbergCement share relative to DGEN, BRAC EPL Market Index, BRAC EPL-20 Index and Cement Sector. Table 21 lists the long term return from the stock.
Table 21: Comparative Performance BEPL Heidelberg BEPL 20 YTD -17.1% -23.3% -18.1% 1 Year -16.1% -7.8% -1.5% 3 Year 129.7% 109.5% 114.2% 5 Year 394.6% 413.6% 452.0% Chart 6: YTD Performance compared to BEPL Index and BEPL-20 Index
110

100
90 80

70 60
Dec-10 Jan-11 Mar-11 HEIDELBERG
Source: DSE, BRAC EPL Research, August 2011

Apr-11

May-11

Jun-11 BEPL 20

Jul-11

Aug-11

BEPL Index

Chart 7: YTD performance relative to DGEN and Cement Sector

130.0 120.0 110.0

100.0 90.0 80.0 70.0 60.0 Dec-10 Feb-11

Heidelberg
Source: DSE, BRAC EPL Research, August 2011

Mar-11
DGEN

May-11

Jun-11

Jul-11

Cement Sector

13

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)
In terms of YTD performance, Heidelberg Cement outperformed all the indices, although the share lost 17% in the year. However, the cement sector as a whole outperformed the stock; mainly because the new issue MI Cement gained steeply after listing in late May 2011. Prior to its listing, HCBL outperformed the cement sector also. We compared the long-term performance of Heidelberg with our BRAC EPL Market Index and BRAC EPL-20 Index. The stock outperformed the market and the blue-chip 20 stocks in three-years return. In other cases, it underperformed the bench-mark.

14

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)

Income Statement 2008A Sales Cost of goods sold Gross Profit Operating Expenses Operating Profit Other Non-operating Income Financial Expenses EBT Tax PAT EBIT (Operating) EBIT (including other income) EBITDA EBITDA (Including Interest Income) Number of shares MM EPS DPS Pay-out Ratio BDT BDT % BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m BDT m 6,369.5 5,148.8 1,220.7 371.3 849.4 83.4 86.9 845.9 (253.4) 592.5 855.2 938.7 1,082.1 1,165.5 5.7 104.9 33.0 31% 2009A 7,207.2 5,414.7 1,792.6 452.3 1,340.3 90.9 27.1 1,404.1 (553.3) 850.9 1,340.2 1,431.1 1,596.4 1,687.4 5.7 150.6 38.0 25% 2010A 8,321.8 6,348.4 1,973.3 564.1 1,409.2 162.9 (8.4) 1,580.5 (581.8) 998.7 1,408.9 1,572.1 1,670.7 1,834.0 5.7 176.8 43.0 24% 2011E 7,754.6 1,824.3 625.4 1,198.9 261.5 21.0 1,439.4 (356.3) 1,083.2 1,198.9 1,460.4 1,490.9 1,752.4 5.7 191.7 53.0 28% 2012E 2013E 9,578.9 11,305.0 13,266.7 9,302.2 10,876.4 2,002.8 720.2 1,282.6 242.6 21.0 1,504.3 (372.3) 1,132.0 1,282.6 1,525.3 1,610.1 1,852.7 5.7 200.3 58.0 29% 2,390.4 853.0 1,537.4 290.4 21.0 1,806.8 (597.2) 1,209.6 1,537.4 1,827.8 1,874.3 2,164.7 5.7 214.1 68.0 32%

Source: Company Data, BRAC EPL Research, August 2011

Cash Flow Statement Operating Cash Flow Net Income Add back non cash expense Change in working capital Cash Flow from operations Investing Activity Other investments Capital Expenditure Cash Flow from Investing Financing Acitivity Increase/(reduction) in debt Dividend Paid Cash flow from Financing Net cash Beginning Balance Cash in Hand Operating Cash Flow per share BDT m BDT m BDT m BDT m BDT m BDT m BDT 4.2 -82.7 851.2 768.5 5.79 -981.7 1,051.1 768.5 1,819.6 369.67 -168.9 677.0 1,819.4 2,496.3 205.11 0.0 -243.0 -243.0 -237.2 2,496.3 2,259.1 213.40 0.0 -299.5 -299.5 334.6 2,259.1 2,593.7 183.01 0.0 -327.7 -327.7 1,266.4 2,593.7 3,860.1 317.53 BDT m BDT m BDT m -119.6 -55.9 -1,200.0 0.0 -313.1 -1,200.0 -400.0 0.0 -400.0 -200.0 0.0 -200.0 BDT m BDT m BDT m BDT m 32.7 2,088.8 1,159.0 2008A 2009A 2010A 2011E 1,083.2 292.0 -169.4 1,205.8 2012E 1,132.0 327.5 -425.3 1,034.1 2013E 1,209.6 336.9 247.6 1,794.1

Source: Company Data, BRAC EPL Research, August 2011

15

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)

Balance Sheet MM BDT Non-current Assets PPE Intangible Asset Current Assets Inventories Trade Debtors Advance and Deposits Cash & Cash equivalent 2008A 2009A 2010A 2011E 2012E 2013E

2,845.6 2,646.9 2,698.1 3,606.1 3,678.7 3,541.8 5.7 2.7 2.3 2.3 2.3 2.3 2,851.2 2,649.5 2,700.4 3,608.4 3,680.9 3,544.0 1,454.9 861.1 1,209.5 1,532.6 2,034.9 2,122.7 470.0 384.0 508.6 670.5 847.9 961.8 326.0 316.5 267.9 383.2 452.2 530.7 768.5 1,819.4 2,496.3 2,259.1 2,593.7 3,860.1 3,019.3 3,380.9 4,482.3 4,845.4 5,928.7 7,475.3

Total Assets Liabilities & Equities: Current Liabilities: Trade Payables and Creditor for expense Other Payables Interest Payable & Inter Company Payable Short-term loans Provisions for other liabilities and charges Provision for tax liability Unpaid dividend Non-current Liabilities: Quasi-Equity Loan Provision for Gratuity Deferred Tax Liability

5,870.5 6,030.5 7,182.7 8,453.8 9,609.6 11,019.4

977.6 131.1 325.0 829.7 45.5 30.2 41.6

934.8 1,131.6 1,484.7 1,752.3 2,056.3 89.0 119.9 191.6 226.1 265.3 309.8 6.2 74.9 198.5 48.5 302.3 17.9 82.8 172.7 57.3 302.3 17.9 75.8 172.7 57.3 302.3 17.9 79.2 172.7 57.3 302.3 17.9 95.1 172.7 57.3

2,380.6 1,661.8 1,884.5 2,302.3 2,607.8 2,967.0 137.9 16.3 27.6 181.8 Total Liabilities Shareholder's Equity Share capital Reserves Retained Earnings 137.9 27.4 230.9 396.2 137.9 40.9 362.9 541.7 137.9 54.0 362.9 554.8 137.9 71.9 362.9 572.7 137.9 90.5 512.9 741.3

2,562.5 2,058.0 2,426.2 2,857.1 3,180.5 3,708.3

565.0 565.0 565.0 565.0 565.0 565.0 629.3 629.3 629.3 629.3 629.3 629.3 2,113.8 2,778.2 3,562.2 4,402.4 5,234.9 6,116.8 3,308.1 3,972.5 4,756.5 5,596.7 6,429.2 7,311.1

Total Liabilities & Equities Book Value per share

Source: Company Data, BRAC EPL Research, August 2011

5,870.5 6,030.5 7,182.7 8,453.8 9,609.6 11,019.4 585.5 703.1 841.8 990.5 1,137.8 1,293.9

16

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)

Table: Indicators and Ratios 2007A Margins: Gross Margin Operating Margin Net Income Margin EBIT Margin EBITDA Margin Growth: Revenue Growth Volume Growth Price Increase Gross Profit Growth Operating Profit Growth Earning Growth EBIT Growth EBITDA Growth Turnover: Total Asset Turnover Inventory Turnover Return: ROE ROA Leverage: Interest Bearing Debt Net Debt Debt to Equity Debt to Asset Other: COGS to sales Operating Exp to Sales Effective Tax Rate Capacity Utilization
Source: Company Data, BRAC EPL Research, August 2011

2008A

2009A

2010E

2011E

2012E

19.2% 13.3% 9.3% 13.4% 17.0%

24.9% 18.6% 11.8% 18.6% 22.2%

23.7% 16.9% 12.0% 16.9% 20.1%

19.0% 12.5% 11.3% 12.5% 15.6%

17.7% 11.3% 10.0% 11.3% 14.2%

18.0% 11.6% 9.1% 11.6% 14.1%

13.3% 4.0% 9.0% 0.8% -1.1% -4.7% -0.7% 1.8%

13.2% 9.7% 3.2% 46.8% 57.8% 43.6% 56.7% 47.5%

15.5% 15.3% 0.2% 10.1% 5.1% 17.4% 5.1% 4.7%

15.1% 12.8% 2.0% -7.6% -14.9% 8.5% -14.9% -10.8%

18.0% 15.7% 2.0% 9.8% 7.0% 4.5% 7.0% 8.0%

17.4% 13.9% 3.0% 19.4% 19.9% 6.9% 19.9% 16.4%

1.16x 4.8x

1.21x 4.7x

1.26x 6.1x

1.23x 5.7x

1.25x 5.2x

1.29x 5.2x

19.2% 10.8%

23.4% 14.3%

22.9% 15.1%

20.9% 13.9%

18.8% 12.5%

17.6% 11.7%

967.6 199.2 29.3% 16.5%

144.1 -1,675.2 3.6% 2.4%

155.8 -2,340.5 3.3% 2.2%

155.8 -2,103.4 2.8% 1.8%

155.8 -2,438.0 2.4% 1.6%

155.8 -3,704.4 2.1% 1.4%

80.8% 5.8% 29.9% 55.1%

75.1% 6.3% 39.4% 55.4%

76.3% 6.8% 36.8% 63.6%

81.0% 6.5% 24.7% 72.0%

82.3% 6.4% 24.7% 61.0%

82.0% 6.4% 33.1% 69.5%

17

HeidelbergCement Bangladesh Limited

(DSE: HEIDELBCEM; Bloomberg: HEID:BD)

IMPORTANT DISCLOSURES
Analyst Certification: Each research analyst and research associate who authored this document and whose name appears herein certifies that the recommendations and opinions expressed in the research report accurately reflect their personal views about any and all of the securities or issuers discussed therein that are within the coverage universe. Disclaimer: Estimates and projections herein are our own and are based on assumptions that we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time to time, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended for distribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside those jurisdictions is strictly prohibited. Compensation of Analysts: The compensation of research analysts is intended to reflect the value of the services they provide to the clients of BRAC-EPL. As with most other employees, the compensation of research analysts is impacted by the overall profitability of the firm, which may include revenues from corporate finance activities of the firm's Corporate Finance department. However, Research analysts' compensation is not directly related to specific corporate finance transaction. General Risk Factors: BRAC-EPL will conduct a comprehensive risk assessment for each company under coverage at the time of initiating research coverage and also revisit this assessment when subsequent update reports are published or material company events occur. Following are some general risks that can impact future operational and financial performance: (1) Industry fundamentals with respect to customer demand or product / service pricing could change expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes; (3) Unforeseen developments with respect to the management, financial condition or accounting policies alter the prospective valuation; or (4) Interest rates, currency or major segments of the economy could alter investor confidence and investment prospects.

BRAC EPL Stock Brokerage Capital Markets Group

Sajid Huq Amit Parvez Morshed Chowdhury Ali Imam Khandakar Safwan Saad Aasim Tajwaar Matin M M Shahnewaz Kabir Shawon Senior Research Analyst Research Analyst Investment Analyst Research Associate Research Associate Research Associate sajid.huq@bracepl.com parvez@bracepl.com imam@bracepl.com safwan@bracepl.com tajwaar.matin@bracepl.com shahnewaz@bracepl.com 01755 541 254 01730 357 154 01730 357 153 01730 357 779 01730 727 913 01730 727 918

Institutional Sales and Trading

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BRAC EPL Research www.bracepl.com WW Tower (7th Floor) 68 Motijheel C/A, Dhaka-1000 Tel: +88 02 951 4721-30 Fax: +88 02 955 3306 E-Mail: research@bracepl.com