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Spark Capital - Dalmia Bharat Limited 4QFY13 result review: North East operations ramping up well; Maintain Buy




Spark Capital Advisors(India) Private Limited


05 Jun 2013





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North East operations ramping up well; Maintain Buy Dalmia Bharat Limited (DBL) 4QFY13 revenues grew 16% y-o-y led by volume growth of 14% to 1.68mt and realisations growth of 3% to Rs. 4,419/t. Total costs/t rose by 9% y-o-y and 5% q-o-q to Rs. 3,687/t. EBITDA/t came in at Rs. 732/t vs. 899/t in 4QFY12. 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. 200/share (earlier Rs. 210/share). At CMP, the stock is trading at an EV/t of $40/t and an EV/EBITDA of 3.6x FY14E 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 FY15E EBITDA for cement business and 1x book value for investment in OCL India Limited. Key takeaways from the result and our interaction with the management: Volumes and outlook: DBL’s FY13 volume grew 11.5% y-o-y to 6.01mt driven by consolidation of its North East operations. South India business volumes grew by ~4% to 5.6mt. We expect DBL’s volumes to grow by 12% in FY14E due to full year volume contribution from Adhunik and Calcom. We assume 5% volume growth for capacities in South. Profitability: DBL’s total EBITDA/t came in at Rs. 732/t in 4QFY13, weighed down by lower realisation growth. EBITDA from Adhunik since consolidation (from 3QFY13) is ~Rs. 480mn, which includes Rs. 200mn of subsidy income. Calcom posted a loss Rs. 80mn of EBITDA since consolidation, which is from 4QFY13. North East business ramp-up: DBL has launched its brand “Dalmia” (replacing Adhunik) in the key markets of North East. The brand is able to command premium pricing in the market, which is on par with other Pan-India players. Exit market share has also doubled from 10% in March-12 to 22% in March-13. 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. 3.75bn is spent till date. Expected to commission by 1HFY15; and (2) 0.8mt grinding unit in Assam at a total capex of Rs. 5bn, of which Rs. 0.65bn is spent till date. 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 over the next two years. We expect debt to increase further by ~Rs.6bn, with peak debt levels to touch ~Rs. 40-41bn. Strong operating cash flow of Rs. 15bn over FY14-15E will fund the balance capex.

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