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Spark Capital: Dalmia Bharat 3QFY13 result reviews




Spark Capital Advisors(India) Private Limited


11 Feb 2013





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Dalmia Bharat Limited – Steady South India operations, offset by lower margin North East operations; Maintain Buy Dalmia Bharat Limited (DBL) 3QFY13 revenues grew 24% y-o-y led by volume growth of 20% to 1.48mt and realisations growth of 3% to Rs. 4,302/t. Total costs/t rose by 12% y-o-y and 7% q-o-q to Rs. 3,528/t, primarily led by higher power & fuel and freight costs. EBITDA/t came in at Rs. 774/t vs. 1,046/t in 3QFY12. Interest costs rose sharply by 91% y-o-y mainly due to consolidation of Adhunik and Calcom Cement debt. Reported PAT came in at Rs. 183mn, down 55% y-o-y. Dalmia Bharat Limited (DBL) is fast emerging as a sizeable cement player through aggressive expansion plans both via organic and inorganic route. DBL’s current group capacity post the acquisition of Adhunik is ~17.1mt and will reach 21.8mt in 2-3 years time. We maintain BUY rating with a SoTP based target price of Rs. 230/share. At CMP, the stock is trading at an EV/t of $40/t and an EV/EBITDA of 2.7x FY15E earnings. We believe the steep discount is unwarranted as the company is well managed which is reflecting in its efficient cost structure and leading market position in its key markets. The target price is arrived based on 5x FY14E EBITDA for cement business and book values for investment in OCL India Limited. Key takeaways from the result and our interaction with the management: Volume & realisation: DBL’s volume grew 20% y-o-y to 1.48mt driven by consolidation of its North East operations. South India business volumes grew by 6% to 1.3mt. Total realisations came in at Rs. 4,302/t. South India realisations came in at Rs. 4,210/t, down 2% q-o-q and up 1% on a y-o-y basis. North East business realisations was ~Rs. 5,000/t. Profitability: DBL’s total EBITDA/t came in at Rs. 774/t, weighed down by lower margin North East operations (~152/t). South India operations EBITDA/t came in at Rs. 860/t vs. 1,087/t in 2QFY13 and Rs. 1,046/t in 3QFY12. Expansion plans: DBL is currently working on two separate expansions, (1) 2.5mt in, Belgaum, Karnataka at a total capex of Rs. 13.4bn, of which Rs. 2.75bn is spent till date. Expected to commission by 1HFY15; and (2) 0.8mt grinding unit in Assam at a total capex of Rs. 5bn. Expected to commission by 1QFY15. Debt levels: Current gross debt post consolidation of Adhunik and Calcom Cement is ~Rs. 34bn. We expect DBL to incur ~Rs. 14-15bn of capex for its Belgaum project and Calcom expansion. As a result, we expect debt to increase further by ~Rs.5bn, with peak debt levels to touch ~Rs. 40-41bn. We expect DBL to generate strong operating cash flow over the next years to the tune of Rs. 17bn, which will help fund the remaining part of the capex. We cut our FY13E and FY14E PAT by 23% and 19%, mainly to incorporate the consolidation effects of higher interest costs and depreciation charges. We have introduced FY15E estimates and roll forward our target price on FY15E.

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