heidelbergcement bangladesh (august 2011)

7/31/2019 HeidelbergCement Bangladesh (August 2011)

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Analyst:

Khandakar Safwan [email protected]

(880) 173 035 7779

HeidelbergCement Bangladesh Ltd. (HCBL) is one of the largest cementmanufacturing company in Bangladesh with 11% market share (2nd). It is operatingas a subsidiary of HeidelbergCement Group (Germany); the group holds 61% stakein the shareholding structure of HeidelbergCement Bangladesh. HCBL has an annualinstalled 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. Thecompany produces cement under two brand names, RubyCement and ScanCement.

We update coverage of HeidelbergCement Bangladesh Limited with aSECTOR PERFORM rating and a 11-month fair value of BDT 3,140 pershare. Our valuation is based on DCF and relative valuation method. Ourfair 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 marketprice 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 andthe outlook of the sector. Cement sector posted 22% and 19% growth in the last twoyears. Given that the government has undertaken a number of massive infrastructureprojects and target real GDP growth rate has been set at a higher level, cementsector is braced for strong growth in the coming years. In order to maintain the marketshare (or increase it), HCBL has already planned for capacity expansion. Otherinvestment 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 to2011E 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 thelast three years return.

Company Summary

52-week Price Range (BDT) 2,515 -4,289

Current Price (BDT) [Aug 8, 2011] 3,024

11-month Fair Value (BDT) 3,140

Price Return 3.8%

Dividend Yield 1.8%

Total Return 5.6%

Number of Shares MM 5.7

Market Cap BDT MM 17,086.7

Free Float 39%

Average Daily Turnover BDT MM (LTM) 52.5

Revenue & Profit (BDT MM) 2010A 2011E 2012E

Total Revenue 8,321.8 9,578.9 11,305.0

Operating Income 1,409.2 1,198.9 1,282.6Net Income 998.7 1,083.2 1,132.0

Source: Company Data, BRAC EPL Research, August 2011

Margin 2010A 2011E 2012E

Gross Margin 23.7% 19.0% 17.7%

Operating Margin 16.9% 12.5% 11.3%

Net Margin 12.0% 11.3% 10.0%

Growth 2010A 2011E 2012E

Revenue Growth 15.5% 15.1% 18.0%

Gross Profit Growth 10.1% -7.6% 9.8%

Operating Profit Growth 5.1% -14.9% 7.0%

Earning Growth 17.4% 8.5% 4.5%

Per Share (BDT) 2010A 2011E 2012E

EPS 176.8 191.7 200.3

DPS 43.0 53.0 58.0

BVPS 841.8 990.5 1,137.8

NOCF/share 213.4 183.0 317.5

Cash Flow (BDT MM) 2010A 2011E 2012E

Operating 1,205.8 1,034.1 1,794.1

Capex (1,200.0) (400.0) (200.0)

Dividend (243.0) (299.5) (327.7)

Valuation 2010A 2011E 2012E

P/E 17.1x 15.8x 15.1x

P/B 3.6x 3.1x 2.7x

EV/EBITDA 8.0x 8.4x 8.0x

Miscellaneous 2010A 2011E 2012E

ROE 23% 21% 19%

ROA 15% 14% 13%

Debt/Equity 3% 3% 2%

Debt/Asset 2% 2% 2%

Net Debt (BDT MM) (2,340.5) (2,103.4) (2,438.0)

Payout Ratio 24% 28% 29%

Capacity 2010A 2011E 2012E

Installed Capacity '000 T 2,100.0 2,100.0 2,868.0

Production '000 T 1,334.6 1,512.0 1,749.5

Capacity utilization 63.6% 72.0% 61.0%

HeidelbergCement Bangladesh LimitedDSE: HEIDELBCEMBloomberg: HEID:BD

Rating: SECTOR PERFORM11 Month Fair Value Estimate: BDT 3,140 per share

August, 2011

Figure: Price Performance of Heidelberg since 2010

.0

100.0

200.0

300.0

400.0

500.0

600.0

2000

2400

2800

3200

3600

4000

4400

Jan-10 Mar-10 May-10 Jul-10 Sep-10 Dec-10 Feb-11 Apr-11 Jun-11

Turnover,BDTMM

Price,BDT

Tu rn ov er P ri ce

Source: DSE, BRAC EPL Research, August 2011


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HeidelbergCement Bangladesh Limited(DSE: HEIDELBCEM; Bloomberg: HEID:BD)

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Global Cement Market in 2010

Global cement consumption (in tonnes) in 2011 crossed 3b mark for the firsttime. 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 highestin the last five years; during the period, growth went down to 2.4% in 2008following global financial crisis, before improving to 5.9% in 2009. Chart 1shows the trend in global cement consumption for the last five years.

The growth in the last two years was mainly driven by China, which accountedfor 56% of the total consumption in the world in 2010. Chinas consumption was1.8b tonnes and 1.6b tonnes respectively in 2010 and 2009, achieving double-digit growth rate of 17% and 16% respectively in those two years. Growth in2010 was only 3% for all other countries apart from China, following negativegrowth in 2009. Chart 2 shows the cement consumption for China and rest ofthe world.

Global cement consumption patterns have changed significantly following theglobal financial crisis. Most of the growth have centered within the Asiacontinent. In fact, North America, South America and Europe, all registered

negative growth in the last two years (shown in table 4).

Cement consumption registered annual growth rate of over 7%* in the lastdecade, which was much higher compared to long term annual growth rate of3.5% (over previous 30 years)*. However outlook for the current (2011-2020)decade is not as strong as that of the closing decade. Accountability for globalwarming and limitation over CO2 emissions may lower the level of cementproduction in the future. However, much will depend upon China withurbanization level reaching 50% in 2010 and cement consumption per capita ofover 1,000 kg, the high growth (in recent years) may slow down in this decade.

Growth in consumption in China wasthe major driver behind global

growth; the country alone accountsfor 56% of the global consumption

9.6%

7.6%

2.4%

5.9%

9.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2,400

2,600

2,800

3,000

3,200

3,400

2006 2007 2008 2009 2010

Total Cement Consumption (LHS) Growth (RHS)

1,000

1,200

1,400

1,600

1,800

2,000

2006 2007 2008 2009 2010

C hi na Ex -C hin a

Continent Growth

Asia 27.9%

North America -30.2%

South America -12.7%

Europe -8.5%

Chart 1: Global Cement Consumption

Chart 2: Consumption of China vs Rest of the World

Table 4: Total Growth in last twoyears by major continents:

Global cement consumption showed9.9% growth in 2010, the highest

growth in the last five years

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

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

Source: Global Cement Report by CEMNET(www.cemnet.com) * According to GLOBAL CEMNET REPORT (www.cemnet.com)


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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% in2008. Turkey was the top exporter in 2010. It produced 62m tonnes of cement,out of which, 46m tonnes was consumed domestically while 16m tonnes wasexported. Bangladesh, which relies totally on imported clinker, was the largestimporter in 2010 with 12.5m tonnes of clinker imported. The country importedonly 5.0m tonnes of clinker in 2008. Such growth in clinker import was mainlydue to booming demand in the local market.

Domestic Market

Bangladesh is self-sufficient in fulfilling local demand for cement. In fact, theinstalled production capacity is much higher than the local demand; the idlecapacity can meet the local demand up to 2015. However, Bangladeshicompanies, except Lafarge Surma Cement, does need to import all the rawmaterial for cement manufacturing, including clinker, gypsum, fly ash and ironslag. These are mainly imported from Thailand, Malaysia, Korea and India. Infact, Bangladesh was the largest importer of clinker globally in 2010.

There are around 55 cement-manufacturing companies, out of which 35 are incommercial production, including five multinationals. The annual installed

production capacity of the sector is 18.5m tonnes. Cement consumption wasaround 12.5m tonnes** in 2010, compared to 10.5m** tonnes in 2009 and 8.6mtonnes in 2008. Last year consumption was little over 60% of the total installedcapacity. Though there is over-capacity in the sector, the market demand isalmost equal to the effective capacity during peak season. Peak season isduring the winter while demand goes slow during the rainy season. Revenuepeaks 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 intable 5) which prompted many companies to increase capacity to meet futuredemand. The growth in 2010 and 2009 followed a period of slow and lowgrowth in 2007 and 2008 when the army-backed caretaker government was inpower. There were very few projects undertaken by the Real Estate sectorwhile the government hardly indulged in any infrastructure development activity.

The environment changed with the new government coming into power in late2008.

Among local brands, Shah Cement, Meghna Cement, Crown Cement, FreshCement, Premier Cement and Seven Circle Cement are popular across thecountry. The five multinational cement companies in operation are: Holcim,Heidelberg, Lafarge Surma, Cemex and Emirates. However, Aditya Birla Groupof India has recently entered the Bangladesh market with their brand -UltraTech. It also acquired Dubai-based ETA Star Cement Company in Aprillast year, and, by extension, the local operation of Emirates Cement inBangladesh.

Outlook for the sector

Construction and Real Estate Activities are the two major drivers of cementconsumption. Construction accounts for 8% of the nominal GDP of the country

while Real Estate accounts for 6.5%. The two sectors achieved annual growthof 12.5% and 8.5% respectively over the last decade. Annual Real GDP growthwas close to 6% in the same period.

In the current decade (2011-2020), Bangladesh government has planned toachieve double-digit GDP growth rate by the end of 2017. In that regard, bothConstruction and Real Estate sector are poised for much higher growth in thefollowing years. Construction activity is expected to increase further as thegovernment looks set to take some massive infrastructure projects. Table 6 onthe following page shows some of the major infrastructure projects.

Construction & Real Estate accountsfor 8% & 6.5% of the nominal GDP;

the two achieved 12.5% & 8.5%annual growth over the last decade.

Heidelberg, Lafarge, Holcim, Cemexand UltraTech/Emirates are the

multinational brands that areoperating in the local market

Cement consumption was about12.5m tonnes in 2010, 19% up from

10.5m tonnes in 2009. Totalconsumption is about 60% of the

total capacity

Turkey was the top exporter in 2010;Bangladesh, relying mostly on

imported clinker, was the largestimporter in 2010 with 12.5m tonnes

of clinker import

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%

Table 5: Cement Consumption

Government has planned to achievemuch higher (Real GDP) growth rate

in the current decade which willboost higher growth for the sector

Source: Annual Report

** According to Annual Report of HeidelbergCement Bangladesh


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Apart from infrastructure, industrialization, urbanization and housing are theother major factors that have an impact on demand for cement. Urbanizationrate is only 28%, compared to 31% in India and 50% in China while poverty rateis 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 260kg per capita. China leads the pack with over 1000 kg per capita consumptionwhile it is only 150 kg for India. Low urbanization rate and the high poverty rateare possible cause for lower consumption but it presents the local market withgood growth prospect. Increase in urbanization and lower poverty level incoming years will increase the domestic cement consumption.

Bangladesh is among the most densely populated countries in the world. Itspopulation density of nearly 1100 people per km presents key issue regardinghousing and shelter. High population density will prompt high rise landmarks toaccommodate the growing population. Given the outlook of the local market, thedemand for cement will be robust in the current decade, unlike the globalscenario.

HeidelbergCement Competition

HeidelbergCement has the second largest market share (of 11%) in the localmarket. Shah Cement, the main competitor of HCBL, is the market leader with14% market share. Holcim (8%), Meghna Cement (7%) and Lafarge (7%) makeup 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.

Table 8 lists all companies with annual capacity beyond 1.0m tonnes. HCBL isonly second to Shah Cement; it has an annual capacity of producing 2.1mtonnes of cement compared to 2.3m tonnes by Shah Cement. However, HCBL

Indicators Bangladesh India China

Population 160.0 1,210.2 1,339.7

Population Density (people per km) 1084 368 140

Population Growth 1.38% 1.34% 0.51%

Urbanization 28% 30% 50%

Urbanization rate 3.50% 2.40% 2.70%

Per Capita Cement Consumption 78kg 150kg 1000kg

Table 7: Cross Country Details (2010 Data)

Despite recent growth in demand,per capita cement consumptionremains very low compare to theworld; low urbanization and high

poverty rate may have resulted intosuch low consumption

Shah Cement 14.0%

HeidelbergCement 10.7%Holcim Cement 8.0%

Meghna Cement 8.0%

Lafarge 7.4%

Table 9: Market Share

Company: Listed Annual Daily

Shah Cement No 2.3m 6,200

HeidelbergCement Yes 2.1m 5,800

Akij Cement No 1.3m 3,600

Holcim Cement No 1.3m 3,600

Lafarge Surma Cement Yes 1.2m 3,400

Seven Rings Cement No 1.2m 3,400

Premier Cement No 1.2m 3,400

Meghna Cement Yes 1.0m 2,800

Table 8: Production Capacity (in tonnes)

Source: BRAC EPL Research, August 2011



Name Completion Date Cost Size

Padma Bridge 2015 USD 2.9b 6.2km

Deep Sea Port 2015 USD 2.0b N/A

Dhaka Elevated Expressway 2014 USD 1.2b 21.0km

Metro Rail N/A USD 1.7b 21.5km

Bangabandhu Int. Airport N/A N/A N/A

Table 6: Major Infrastructure Projects


HCBL has the 2nd largest marketshare (of 11%) and production

capacity (of 2.1m tonnes) after ShahCement , a local producer


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will increase the production capacity by additional 0.77m tonnes by the end ofthis year. Shah Cement has also reportedly planned to increase their capacity.Some of the other local manufacturers, including Meghna Cement and AkijCement. HCBL will face challenge to maintain or increase their market shareamid such competition. Moreover pricing will be more competitive as thecompanies 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 LafargeSurma Cement. Lafarge is the only exception to all other cement companies inthat they manufacture the clinker instead of importing it. The company has setup a mining factory in India; they extracts lime from their own mine in India. Thelime is transferred to Bangladesh and the company uses that to produce theclinker. Operation of the mining factory in India has been suspended inFebruary 2010 following a legal petition filed by local Indians on environmentalissue. However the Supreme Court of India recently passed the verdict in favorof Lafarge. Soon, Lafarge will start to produce clinker again. It will have a greatcompetitive advantage over others as other companies will incur higher cost forclinker import in coming years. Local currency (BDT) has been depreciatingsignificantly against dollar (USD) in recent times. Moreover rise in oil price inthe 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 cementcompany in Bangladesh (and the only one) to produce harmless fly-ash-freecement. The company set up the countrys first Vertical Roller Mill technology in2009 in order to gain market share. Because of absence of fly-ash in theircement, 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 steadyand low COGS level. Raw material cost accounts for 85% of the total COGSand most of them (about 95%) are imported from other countries; HCBL importsmainly from Thailand. In times of depreciating local currency (BDT), HCBL willhave to make additional import payment for most of their raw materials apartfrom increase in raw material cost. Under such circumstances, the gross marginwill shrink to result into lower operating margin.

Moreover, because of the surplus capacity of the sector, HCBL will find itdifficult to pass on the increase in raw material cost to the consumers. Increasein raw material price in the global market will impact all the global companiesbut depreciating local currency will impact the local companies only. In fact, allthe cement manufacturers in the country will face the same problem apart fromLafarge. In 2010, HCBL was able to increase price only by 0.2%.

Projected Operating Performance

Steady Growth in Sales Revenue

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

Depreciating BDT will result intohigher import payment for raw

materials; it already depreciatedsignificantly in 2011

Lafarge is the only company thatmanufactures clinker rather than

importing it

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

Assuming cement consumption inBangladesh will reach the current

consumption level in India in sixyears time, the sector will experience

14% annual growth over theprojected period


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HeidelbergCement registered 17.9% annual revenue growth over the last fiveyears. 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 ratherthan increase in selling price. In 2010, the company achieved 15.3% volumegrowth while capacity utilization was 64%. We expect the volume growth to fallslightly in 2011 before picking up again in 2012; once capacity is enhanced bythe end of 2011, volume growth will pick up.

HCBL was able to increase the selling price in past years. Average annual priceincrease 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, itwas very marginal. In light of overcapacity and increased completion, we do notexpect HCBL to increase price significantly in the following years. We projected2% price increase in 2011 and 2012. Afterwards we assumed 3% priceincrease in the next four years as overcapacity situation will improve in thedomestic market. However, it is unlikely that 2% and 3% price increase willcover increase in raw material cost, which will result into shrinking grossmargin.

Expansion Program

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 anestimated cost of BDT 1.3b. The project will be financed through companysown 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 theyear. Annual capacity utilization was only 64% in 2010, which is the highest ratethe company has achieved in all years of operation. The utilization is muchhigher during the peak season which actually prompted many companies tobuild capacity. Table 11 shows the capacity utilization over the last seven years.

We further assumed that the company will have to increase capacity soon tomeet the growing demand. With the projected growth, capacity utilization willreach 77% by the end of 2014. We assumed additional 700,000 tonnes will beadded 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 toBDT) was relatively stable** during the period. As a result, any fluctuation ingross margin resulted from inability to pass on the increase in input cost to theconsumers. However, exchange rate is not expected to remain stable in thefuture and as such there will be more volatility in the cost of sales. In the firsthalf of 2011, the local currency (BDT) already depreciated about 6%. COGSincreased to 81.6% in the same period as HCBL had to pay more for import ofraw materials; gross margin shrank to 18.4%. Projected gross margin is about18% in the next six years compared to 22% in the last five years.

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

22% in the last five years

Domestic demand is expected todrive volume sales of HCBL. Price

increase will be minimal because ofovercapacity in the market and

competition

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

36.9% 12.3% 13.3% 13.2% 15.5% 15.1% 18.0% 17.4% 13.4% 15.6%Revenue 13.4%

23.8% 0.8% 4.0% 9.7% 15.3% 12.8% 15.7% 13.9% 10.1% 12.2%Volume 10.1%

10.6% 11.4% 9.0% 3.2% 0.2% 2.0% 2.0% 3.0% 3.0% 3.0%Price 3.0%

67.5% 24.7% 0.8% 46.8% 10.1% -7.6% 9.8% 19.4% 13.6% 15.5%Gross Profit 18.7%

147.5% 24.7% -1.1% 57.8% 5.1% -14.9% 7.0% 19.9% 13.9% 15.2%Operating Profit 21.7%273.0% 19.2% -4.7% 43.6% 17.4% 8.5% 4.5% 20.1% 15.7% 16.7%Earnings 24.3%

Table 11: Capacity (million tonnes)

Year Installed Production Utilization

2004 1.62 0.81 49.9%

2005 1.62 0.82 50.5%

2006 1.62 1.01 62.2%

2007 1.62 1.02 62.9%

2008 2.10 1.06 55.1%*

2009 2.10 1.16 55.4%

2010 2.10 1.33 63.6%

Table 10: Growth Ratios

Source: Annual Report, BRAC EPL Research, August 2011

Source: Annual Report,, August 2011

* 2008 capacity utilization adjusted for time weightedinstalled capacity for that year

** Chart 4 on page 10 shows the historical exchange rate for USD:BDT


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We expect the COGS margin to remain high in current year as well as incoming years. We forecasted exchange rate to reach 80 (USD:BDT=1:80) andCOGS to remain around 82% in the next six years. Higher COGS (relative to2010) will result into negative gross profit growth in 2011.

Bulk of the COGS generate from raw material cost which accounted for 87% ofCOGS in 2010. Chart 3 shows the components of raw materials in 2010. Apartfrom packing materials, all others are imported.

Operating Margin

Operating margin is projected to decline also mainly because of lower grossmargin. However, operating expense to sales is expected to improve withhigher volume sales and higher capacity utilization. With higher output, fixedcosts will be spread over additional units. In 2010, operation expense increasedsignificantly due to higher administrative expense. Last year, HCBL had to payVAT on technical know-how fee which was introduced in the last year.Technical know-how fee is payable to HeidelbergCement Asia Pte @ 3% of netsales of prior year. In addition, HCBL paid 28% VAT on the fee in 2010. As aresult 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 negativegross profit growth (see Table 10 on page 7).

Financial Income

HCBL has build up significant cash balance over the years. Cash & cashequivalent stood at BDT 2.5b in 2010 out of which BDT 2.2b was invested inFixed Deposit Account. The company received BDT 163.2m as interest incomein 2010 which was 2% of net sales revenue. Moreover, interest rate in the localeconomy has gone up in 2011. Because of liquidity shortage in the moneymarket and tighter monetary policy undertaken by the central bank (to tackleinflation), interest rate is expected to remain high in the coming years. HCBLwill benefit from such interest rate hike as it has little debt. It had short term loanof BDT 17.9m outstanding in the 2010 balance sheet. Financial income to salesratio will increase in the following years which will boost net profit margin.Despite lower gross profit and operating profit margin, net income margin isexpected to improve.

Current Tax & Deferred Tax

We have applied corporate tax rate of 24.75% in calculating current tax. Theactual corporate tax rate is 27.5% for comparable listed companies with further10% rebate when the company pays out more than 20% cash dividend on theirpaid-up capital.

The effective tax rate in last two years was much higher than the current taxrate. HCBL incurred BDT 203.3m and BDT 132.0m as deferred tax in 2009 and2010 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 in2013 and 2014 when we projected further capacity expansion for HCBL.

HCBL earned BDT 163.2m asinterest income in 2010; HCBL will

benefit more from its rising cashbalance as interest rate in the

economy is expected to increase

2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Gross Profit 19.4% 21.5% 19.2% 24.9% 23.7% 19.0% 17.7% 18.0% 18.1% 18.0% 18.9%

COGS 80.6% 78.5% 80.8% 75.1% 76.3% 81.0% 82.3% 82.0% 81.9% 82.0% 81.1%

Operating Profit 13.8% 15.3% 13.3% 18.6% 16.9% 12.5% 11.3% 11.6% 11.6% 11.6% 12.5%

Op. exp. To sales 5.2% 5.7% 5.3% 5.3% 6.0% 6.0% 5.8% 5.9% 5.9% 5.9% 5.8%

Net Income 10.4% 11.1% 9.3% 11.8% 12.0% 11.3% 10.0% 10.2% 10.5% 10.6% 11.6%EBIT 13.9% 15.3% 13.4% 18.6% 16.9% 12.5% 11.3% 11.6% 11.6% 11.6% 12.5%

EBITDA 17.8% 18.9% 17.0% 22.2% 20.1% 15.6% 14.2% 14.1% 14.1% 14.1% 14.7%

Table 12: Margin Ratios

Clinker

74%

Gypsum

3%

Iron Slag

11%

Limestone & Fly

Ash

5%

Packing

Materials

7%

Chart 3: Raw material components

Effective tax rate was much higher in2009 and 2010 due to creation of

deferred tax liability in the balancesheet

Source: Annual Report, BRAC EPL Research, August 2011

Source: Annual Report, 2011


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Low Pay-Out Ratio and High Retained Earnings

HCBL has maintained a low pay-out ratio of 25% on average over the last sixyears. 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, thereserve balance increased five times in the last six years - from BDT 720.5m toBDT 3,6b.

Free Float, Liquidity & Shareholding Structure

HCBL has 39% free float according to the shareholding structure. Effective freefloat is slightly less (33%). State-owned Investment Corporation of Bangladesh(ICB) holds 6% of the outstanding shares of Heidelberg which are seldomtraded.

The average daily turnover of HCBL is BDT 21.1m (USD 0.3m) YTD comparedto BDT 83.8m (USD 1.1 million) in 2010. The turnover value went down in 2011as 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 buildthe 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 longflyover has started in mid 2010. The flyover construction is aimed atreducing traffic congestion of the southern part of the Dhaka city and toestablish improved and faster road connectivity with 30 districts, includingChittagong. ScanCement will be used non-exclusively.

NEW MOORING CONTAINER TERMINAL (PHASE 2): Implementation ofBack up facilities of New Mooring Container Terminal of Chittagong portalready 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 Chittagonghighway to 4 lane in order to increase efficiency of the road transport andto optimize the utilization of the Chittagong port. However, implementationof 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 citysheavy industrial area, Kalurghat. The 1.35 km long flyover is expected tobe 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 adversemovement in the exchange rate will increase the import cost and lower thegross margin of Heidelberg. Chart 4 in the following page shows thehistorical exchange rate for USD:DBT since 2007. After remaining stablefor many years, USD appreciated almost 6% in 2011. Oil price in the

Sponsor Portion 61%

General Public 21%

ICB 6%

Other Institution 12%

Table 13: Shareholding Structure

Source: Annual Report, August 2011


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10

international market will also have an impact in raw material cost asshipment 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 themanufacturers, including Heidelberg Cement and Shah Cement, haveplanned for capacity expansion. As a result, higher volume growth in thefollowing years may still result into under utilization of the capacity. In thatcase the company will find it difficult to increase selling price of theirproducts.

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 revenuegrowth for the sector.

Valuation

We have estimated 11-month forward fair value of HeidelbergCementBangladesh at BDT 3,140 per share by the end of June 2012. With currentmarket 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

HeidelbergCement recently disclosed their half-yearly earnings for 2011.Revenue growth in the six month period was 3.7% compared to the sameperiod last year while earnings posted 20.1% loss. COGS was 81.6% in1H2011 compared to 74.0% in 1H2010, which resulted into negative growth ofnet profit. The company lost 7.6% gross margin owing to higher import paymentof raw materials; local currency, BDT, depreciated about 6% in 2011.

The company reported very high financial income during the period. Earningsfrom interest income in the first six-months of 2011 is close to total interestincome earnings in whole year of 2010. The company benefitted from the highinterest level in the economy and from its BDT 2.5b cash balance at the end of2010. Its cash balance reached BDT 3.0b at the end of June 2011.

66

68

70

72

74

76

Chart 4: Historical Exchange Rate for USD:BDT


HCBL reported very high financialincome in 1H2011 as high interestrate in the economy boosted their

interest earnings

Revenue growth was 3.7% but netprofit was 20.1% down in 1H2011;Gross margin shrank due to higher

raw material cost


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11

Valuation Method

We have used DCF valuation and relative valuation (Price/Earnings multiplebased) in deriving the fair value of the HeidelbergCement Bangladesh. Our DCFvaluation gave us a fair value per share of BDT 2,944 at the end of 2011. Wehave considered a discount rate of 16.0% and a terminal growth rate of6.0%. We projected financial statement till 2016. Considering capacityenhancement in 2015, we assumed that the Free Cash Flow to Firm (FCFF) willgrow at 10% in 2017 and 8% in 2018. Afterwards it will grow at the terminalgrowth rate of 6%.

For relative valuation, we have used valuations of other listed cementcompanies that are traded in Dhaka Stock Exchange (DSE). The average P/Eand 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 haveused a P/E multiple of 15.0x, which is the historical average at which HCBLshares have traded (from 2006 onwards). Table 18 (on the page 12) shows thecomparative companies while chart 5 (on page 12) shows the historical P/Emultiple of Heidelberg. Based on estimated 2011 EPS of BDT 191.70, therelative price stands at BDT 2,875 per share.

Using the average of the two values, the fair value of Heidelberg stands at BDT2,910per 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 2011Eearnings. With current price of BDT 3,024, the fair price implies 3.8% pricereturn in the next eleven months. Dividend for 2011 is projected at BDT 53 pershare, 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 elevenmonths.

(BDT million) 2011 2012 2013 2014 2015 2016 2017 2018

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

Cash Income Tax 296.7 317.5 380.5 433.6 499.6 608.1

Add Depreciation 292.0 327.5 336.9 375.3 427.6 441.6

Change in working capital (169.4) (425.3) 247.6 342.2 (47.6) (115.5)

Cash Flow from operation 1,024.8 867.3 1,741.4 2,035.7 1,899.1 2,175.0

Capital Expenditure (1,200.0) (400.0) (200.0) (1,500.0) (200.0) (200.0)

FCFF -175.2 467.3 1,541.4 535.7 1,699.1 1,975.0 2,172.5 2,346.3

Terminal Value 24,870.7

Net Cash Flow -175.2 467.3 1,541.4 535.7 1,699.1 1,975.0 2,172.5 27,217.0

Discount rate 16.0% NPV (2011 end): 14, 292.1

Terminal growth rate 6.0% Cash & Cash Equivalent: 2,496.3

No. of shares (millions) 5.65 Interest bearing Debt 155.8

NPV per share (2011 end) 2,944 16,632.7Total Equity Value:

Table 14: Discounted FCF


Using DCF and relative valuation, wearrived at a fair value of BDT 3,140

per share at June 2012. With anestimated dividend yield of 1.8%, ourfair price would provide a total returnof 5.6% in eleven months, based on

the current market price

Table 15: Relative Valuation

2011 Estimates EPS 191.70

Multiple used 15.0x

Target Price 2,875

Table 17: Fair Value and Return

Fair Value (at June 2012) 3,140

Current Market Price (Aug 7, 2011) 3,024

Price Return 3.8%

Cash Dividend per share 53

Dividend Yield 1.8%

Total Return 5.6%

Table 16: Fair Value

Average of DCF and P/E multiple 2,910

Fair Price at June, 2012 (adjustingfor discounting factor for 6 months 3,140


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12

Sensitivities

We assess sensitivities of our valuation to key assumptions. DCF value is mostsensitive to change in terminal growth rate and discount rate. With our keyinputs (Terminal Growth 6% & Discount Factor 16%), per share value rangesfrom 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. Forvarious 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 inthe next page. The different level of earnings around the base EPS of BDT192is given by 2.5%, 5% and 7.5% standard deviation of the projected earnings.

Cement CompaniesMarket Price

(BDT)

EPS

(BDT)

MCAP

(BDT MM)P/E

BVPS

(BDT)P/B

ARAMITCEM 1,217.75 45.72 1,875.326.6x 85.84 14.2x

CONFIDCEM 177.60 7.42 6,659.023.9x 69.43 2.6x

LAFSURCEML 639.50 -45.86 37,134.9N/A 76.30 8.4x

MEGHNACEM 211.40 9.02 4,756.623.4x 29.84 7.1xMICEMENT 196.10 7.37 19,610.026.6x 61.39 3.2x

Average of multiples 25.2x 7.1x

Table 18: Comparative companies


* EPS figures based on latest quarterly reports for 2011

Table 19: Implied Per Share Value at different Terminal Growth & Discount Rate

Terminal Growth Rate

DiscountRate

Legend:

XXX Price within 52 weeks High-Low range

XXX Price range within key inputs

52 week high-low: 2,515 4,289

Current Price: 3,024

4% 5% 6% 7% 8%

12% 3,987 4,363 4,864 5,565 6,617

13% 3,542 3,819 4,175 4,650 5,315

14% 3,187 3,397 3,660 3,998 4,448

15% 2,899 3,062 3,261 3,511 3,831

16% 2,660 2,789 2,944 3,133 3,370

17% 2,458 2,562 2,685 2,832 3,012

18% 2,287 2,371 2,470 2,587 2,726

19% 2,139 2,209 2,289 2,383 2,494

0.0

3.0

6.0

9.0

12.0

15.0

18.0

21.0

24.0

27.0

30.0

33.0

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11


Chart 5: PE band (Trailing) for Heidelberg share


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Table 20: Implied Per Share Value at different projected EPS and P/E multiple

2011E EPS

P/Emultiple

Heidelberg BEPLBEPL

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%

Table 21: Comparative Performance Chart 6: YTD Performance compared to BEPL Index and BEPL-20 Index

177 182 187 192 196 201 206

7.0x 1241 1275 1308 1342 1375 1409 1443

9.0x 1596 1639 1682 1725 1768 1812 185511.0x 1951 2003 2056 2109 2161 2214 2267

13.0x 2305 2367 2430 2492 2554 2617 2679

15.0x 2660 2732 2804 2875 2947 3019 3091

17.0x 3014 3096 3177 3259 3340 3422 3503

19.0x 3369 3460 3551 3642 3733 3824 3915

21.0x 3724 3824 3925 4026 4126 4227 4328

23.0x 4078 4189 4299 4409 4519 4630 4740

Legend:

XXX Price within 52 weeks High-Low range

XXX Price range within key inputs

52 week high-low: 2,515 4,289

Current Price: 3,024

Price Performance relative to Index

The two charts below shows the YTD price performance of HeidelbergCementshare relative to DGEN, BRAC EPL Market Index, BRAC EPL-20 Index andCement Sector. Table 21 lists the long term return from the stock.

60

70

80

90

100

110

Dec-10 Jan-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11

HEIDELBERG BEPL Inde x BEPL 20

Chart 7: YTD performance relative to DGEN and Cement Sector

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

Dec-10 Feb-11 Mar-11 May-11 Jun-11 Jul-11

Heidelberg DGEN Cement Sector




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14

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 wholeoutperformed the stock; mainly because the new issue MI Cement gainedsteeply after listing in late May 2011. Prior to its listing, HCBL outperformed thecement sector also.

We compared the long-term performance of Heidelberg with our BRAC EPLMarket Index and BRAC EPL-20 Index. The stock outperformed the market andthe blue-chip 20 stocks in three-years return. In other cases, it underperformedthe bench-mark.


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Income Statement



2008A 2009A 2010A 2011E 2012E 2013E

Sales 6,369.5 7,207.2 8,321.8 9,578.9 11,305.0 13,266.7BDT m

Cost of goods sold 5,148.8 5,414.7 6,348.4 7,754.6 9,302.2 10,876.4BDT m

Gross Profit 1,220.7 1,792.6 1,973.3 1,824.3 2,002.8 2,390.4BDT m

Operating Expenses 371.3 452.3 564.1 625.4 720.2 853.0BDT m

Operating Profit 849.4 1,340.3 1,409.2 1,198.9 1,282.6 1,537.4BDT m

Other Non-operating Income 83.4 90.9 162.9 261.5 242.6 290.4BDT m

Financial Expenses 86.9 27.1 (8.4) 21.0 21.0 21.0BDT m

EBT 845.9 1,404.1 1,580.5 1,439.4 1,504.3 1,806.8BDT m

Tax (253.4) (553.3) (581.8) (356.3) (372.3) (597.2)BDT m

PAT 592.5 850.9 998.7 1,083.2 1,132.0 1,209.6BDT m

EBIT (Operating) 855.2 1,340.2 1,408.9 1,198.9 1,282.6 1,537.4BDT m

EBIT (including other income) 938.7 1,431.1 1,572.1 1,460.4 1,525.3 1,827.8BDT m

EBITDA BDT m 1,082.1 1,596.4 1,670.7 1,490.9 1,610.1 1,874.3

EBITDA (Including Interest Income) BDT m 1,165.5 1,687.4 1,834.0 1,752.4 1,852.7 2,164.7Number of shares MM 5.7 5.7 5.7 5.7 5.7 5.7

EPS 104.9 150.6 176.8 191.7 200.3 214.1BDT

DPS 33.0 38.0 43.0 53.0 58.0 68.0BDT

Pay-out Ratio 31% 25% 24% 28% 29% 32%%

Operating Cash Flow 2008A 2009A 2010A 2011E 2012E 2013E

Net Income BDT m 1,083.2 1,132.0 1,209.6

Add back non cash expense BDT m 292.0 327.5 336.9

Change in working capital BDT m -169.4 -425.3 247.6Cash Flow from operations BDT m 32.7 2,088.8 1,159.0 1,205.8 1,034.1 1,794.1

Investing Activity

Other investments BDT m -1,200.0 -400.0 -200.0

Capital Expenditure BDT m 0.0 0.0 0.0

Cash Flow from Investing BDT m -119.6 -55.9 -313.1 -1,200.0 -400.0 -200.0

Financing Acitivity

Increase/(reduction) in debt BDT m 0.0 0.0 0.0

Dividend Paid BDT m -243.0 -299.5 -327.7

Cash flow from Financing BDT m 4.2 -981.7 -168.9 -243.0 -299.5 -327.7

Net cash BDT m -82.7 1,051.1 677.0 -237.2 334.6 1,266.4Beginning Balance BDT m 851.2 768.5 1,819.4 2,496.3 2,259.1 2,593.7

Cash in Hand BDT m 768.5 1,819.6 2,496.3 2,259.1 2,593.7 3,860.1

Operating Cash Flow per share BDT 5.79 369.67 205.11 213.40 183.01 317.53

Cash Flow Statement


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MM BDT 2008A 2009A 2010A 2011E 2012E 2013E

Non-current Assets

PPE 2,845.6 2,646.9 2,698.1 3,606.1 3,678.7 3,541.8

Intangible Asset 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

Current Assets

Inventories 1,454.9 861.1 1,209.5 1,532.6 2,034.9 2,122.7

Trade Debtors 470.0 384.0 508.6 670.5 847.9 961.8

Advance and Deposits 326.0 316.5 267.9 383.2 452.2 530.7

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

Liabilities & Equities:

Current Liabilities:

Trade Payables and Creditor for expense 977.6 934.8 1,131.6 1,484.7 1,752.3 2,056.3

Other Payables 131.1 89.0 119.9 191.6 226.1 265.3

Interest Payable & Inter Company Payable 325.0 309.8 302.3 302.3 302.3 302.3

Short-term loans 829.7 6.2 17.9 17.9 17.9 17.9

Provisions for other liabilities and charges 45.5 74.9 82.8 75.8 79.2 95.1

Provision for tax liability 30.2 198.5 172.7 172.7 172.7 172.7

Unpaid dividend 41.6 48.5 57.3 57.3 57.3 57.3

2,380.6 1,661.8 1,884.5 2,302.3 2,607.8 2,967.0

Non-current Liabilities:

Quasi-Equity Loan 137.9 137.9 137.9 137.9 137.9 137.9

Provision for Gratuity 16.3 27.4 40.9 54.0 71.9 90.5

Deferred Tax Liability 27.6 230.9 362.9 362.9 362.9 512.9

181.8 396.2 541.7 554.8 572.7 741.3

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

Shareholder's Equity

Share capital 565.0 565.0 565.0 565.0 565.0 565.0

Reserves 629.3 629.3 629.3 629.3 629.3 629.3

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

Book Value per share 585.5 703.1 841.8 990.5 1,137.8 1,293.9

Balance Sheet



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17

2007A 2008A 2009A 2010E 2011E 2012E

Margins:

Gross Margin 19.2% 24.9% 23.7% 19.0% 17.7% 18.0%

Operating Margin 13.3% 18.6% 16.9% 12.5% 11.3% 11.6%

Net Income Margin 9.3% 11.8% 12.0% 11.3% 10.0% 9.1%

EBIT Margin 13.4% 18.6% 16.9% 12.5% 11.3% 11.6%

EBITDA Margin 17.0% 22.2% 20.1% 15.6% 14.2% 14.1%

Growth:

Revenue Growth 13.3% 13.2% 15.5% 15.1% 18.0% 17.4%

Volume Growth 4.0% 9.7% 15.3% 12.8% 15.7% 13.9%

Price Increase 9.0% 3.2% 0.2% 2.0% 2.0% 3.0%

Gross Profit Growth 0.8% 46.8% 10.1% -7.6% 9.8% 19.4%Operating Profit Growth -1.1% 57.8% 5.1% -14.9% 7.0% 19.9%

Earning Growth -4.7% 43.6% 17.4% 8.5% 4.5% 6.9%

EBIT Growth -0.7% 56.7% 5.1% -14.9% 7.0% 19.9%

EBITDA Growth 1.8% 47.5% 4.7% -10.8% 8.0% 16.4%

Turnover:

Total Asset Turnover 1.16x 1.21x 1.26x 1.23x 1.25x 1.29x

Inventory Turnover 4.8x 4.7x 6.1x 5.7x 5.2x 5.2x

Return:

ROE 19.2% 23.4% 22.9% 20.9% 18.8% 17.6%

ROA 10.8% 14.3% 15.1% 13.9% 12.5% 11.7%

Leverage:

Interest Bearing Debt 967.6 144.1 155.8 155.8 155.8 155.8

Net Debt 199.2 -1,675.2 -2,340.5 -2,103.4 -2,438.0 -3,704.4

Debt to Equity 29.3% 3.6% 3.3% 2.8% 2.4% 2.1%

Debt to Asset 16.5% 2.4% 2.2% 1.8% 1.6% 1.4%

Other:

COGS to sales 80.8% 75.1% 76.3% 81.0% 82.3% 82.0%

Operating Exp to Sales 5.8% 6.3% 6.8% 6.5% 6.4% 6.4%

Effective Tax Rate 29.9% 39.4% 36.8% 24.7% 24.7% 33.1%

Capacity Utilization 55.1% 55.4% 63.6% 72.0% 61.0% 69.5%


Table: Indicators and Ratios


18/18

IMPORTANT DISCLOSURES

Analyst Certification: Each research analyst and research associate who authored this document andwhose name appears herein certifies that the recommendations and opinions expressed in the researchreport 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 tobe reasonable. Information presented herein, while obtained from sources we believe to be reliable, is notguaranteed either as to accuracy or completeness. Neither the information nor any opinion expressed hereinconstitutes a solicitation of the purchase or sale of any security. As it acts for public companies from time totime, BRAC-EPL may have a relationship with the above mentioned company(s). This report is intended fordistribution in only those jurisdictions in which BRAC-EPL is registered and any distribution outside thosejurisdictions is strictly prohibited.

Compensation of Analysts: The compensation of research analysts is intended to reflect the value of theservices they provide to the clients of BRAC-EPL. As with most other employees, the compensation ofresearch analysts is impacted by the overall profitability of the firm, which may include revenues fromcorporate 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 undercoverage at the time of initiating research coverage and also revisit this assessment when subsequent updatereports are published or material company events occur. Following are some general risks that can impactfuture operational and financial performance: (1) Industry fundamentals with respect to customer demand orproduct / service pricing could change expected revenues and earnings; (2) Issues relating to majorcompetitors or market shares or new product expectations could change investor attitudes; (3) Unforeseendevelopments with respect to the management, financial condition or accounting policies alter the prospectivevaluation; or (4) Interest rates, currency or major segments of the economy could alter investor confidenceand investment prospects.

BRAC EPL Stock Brokerage Capital Markets Group

Sajid Huq Amit Senior Research Analyst [email protected] 01755 541 254

Parvez Morshed Chowdhury Research Analyst [email protected] 01730 357 154

Ali Imam Investment Analyst [email protected] 01730 357 153

Khandakar Safwan Saad Research Associate [email protected] 01730 357 779

Aasim Tajwaar Matin Research Associate [email protected] 01730 727 913

M M Shahnewaz Kabir Shawon Research Associate [email protected] 01730 727 918

BRAC EPL Researchwww.bracepl.com

WW Tower (7th

Floor)68 Motijheel C/A, Dhaka-1000Tel: +88 02 951 4721-30Fax: +88 02 955 3306E-Mail: [email protected]


Institutional Sales and Trading

Delwar Hussain (Del)Head of Institutional Salesand Trading

[email protected] 01755 541 252
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.bracepl.com/http://www.bracepl.com/mailto:[email protected]:[email protected]:[email protected]://www.bracepl.com/mailto:[email protected]:[email protected]:[email protected]

heidelbergcement bangladesh (august 2011)

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