Fitch Changes Outlook on ACC’s NCD Programme to Positive; Affirms Ratings

Fitch Ratings-Mumbai/London–30 January 2006: Fitch Ratings has today changed the Outlook on the Non-Convertible Debenture (“NCD”) programme of The Associated Cement Companies Limited (“ACC”) to Positive from Stable. At the same time the agency has affirmed the National rating for the NCD programme at ‘AA+(ind)’ and the ‘F1+(ind)’ National rating for ACC’s INR1,500 million Commercial Paper/Short Term Debt programme. Fitch has also affirmed ACC’s issuer rating at ‘AA+(ind)’.

The revision of the Outlook to Positive reflects the improving financial profile of ACC, increasing involvement of Holcim Limited (Long Term Senior Unsecured foreign currency rating of ‘BBB+’) and limited debt led capex plans. Fitch notes that Holcim - through Ambuja Cement India Limited - has become the largest shareholder in ACC and enjoys management control despite being short of a majority shareholding. Fitch expects the benefits of Holcim’s experience in use of alternate fuel strategies to accrue to ACC in the short to medium term, providing greater stability to margins and cash flows. The strong likelihood of conversion of the outstanding balance of foreign currency convertible bonds (“FCCBs”) to equity (79% having already been converted) is expected to further improve its financial flexibility. Coupled with its association with Holcim, this would allow ACC to capitalize on the opportunities likely to be available due to the fragmented nature of the Indian cement industry. This, in Fitch’s opinion, would strengthen ACC’s position in the market.

Key concerns primarily emanate from the cyclicality of the industry, increasing raw material and fuel costs, threat of increased production of blended cement distorting demand, supply dynamics and the exchange rate risk on ACC’s residual foreign currency borrowings. The company’s present capital expenditure plans are estimated to be financed primarily from internal generations, limiting impact on debt protection measures.

Holcim is the world's second largest cement manufacturer after Lafarge SA and also a world leader in aggregates and concrete, with sales of more than EUR8.6bn and over 150 million tons of cement capacity at fiscal year-end 2004. These strong positions are supported by superior geographical diversification with a high penetration in Latin America, which offer higher EBITDA margins and more dynamic growth than mature markets, and increased presence in high growth countries of Central/Eastern Europe, Asia and India. Such an extensive and unmatched global reach has been a key feature of the company's well executed strategy of the past decades and has helped mitigate cyclicality in recent years. This is evidenced by consistently strong operating performance and above sector average EBITDA margins during the past five years (fiscal 2004: 27.2%). Holcim’s investment in ACC is of strategic importance to its overall growth strategy. With a global presence in 70 countries, Holcim enjoys long standing relationships with local partners and aims to ultimately own a majority stake if there are conflicts of interest with minority shareholders.

ACC is one of the largest cement producers in India with overall capacity of 18.3mtpa. Cement contributed approximately 88% to net sales in FY05 (April-December 2005), the balance being contributed by Ready Mix Concrete (RMC), refractory and consultancy service. ACC has decided to change its financial year to January-December and consequently the last financial year was for a period of nine months, i.e April 1, 2005 to December 2005. In line with Holcim’s global product mix, ACC hived off its refractory business, sold off its equity holding in Everest Industries and merged its cement subsidiaries during FY05. At FYE05, ACC reported net sales of INR32,034m (INR27,887m in the corresponding period last year) on which it earned a net profit of INR5,441m (INR2,128m in the corresponding period last year) benefiting from extraordinary gain on sale of assets/equity and improvement in cement volumes and prices during the period.

Note to editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(ind)’ for National ratings in India. Specific letter grades are not therefore internationally comparable.

Contact: Amit Banerji, Mumbai, +91 22 4000 1741, amit.banerji@fitchratings.com, Rakesh Valecha, Mumbai, +91 22 4000 1740, rakesh.valecha@fitchratings.com

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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