Spark Capital: Dalmia Bharat Limited - FY13 Annual Report Analysis and 1QFY14 result review
Spark Capital Advisors(India) Private Limited
29 Aug 2013
Available for Immediate Download
Dalmia Bharat Limited (DBL) published its FY13 annual report and we present below the key takeaways: Muted volume growth from its South India operations: DBL’s FY13 volumes from its South India operations grew by a muted ~4%. This we believe is a combination of both lower demand and market share losses in their end markets. DBL posted volumes of ~0.4mt from its North East operations since its acquisition in 3QFY13. Overall dispatch mix in FY13 was TN 47%, Kerala 21%, Karnataka 13%, AP 9%, North East 7%, and others 3%. Cost inflation under check in FY13: Total cost/t in its South India operations was up only 3.3% in FY13. This was aided by lower power and fuel costs and tight control over fixed costs. However, on a consolidated basis, total costs/t increased by 5.6% due to lower utilisations (54%) in North-East capacities. North-East capacities ramp-up: During the year (3QFY13) DBL acquired 100% of Adhunik group’s 1.5mt plant in Meghalaya and 76% stake in Calcom Cement which has a 1.3mt grinding unit in Assam. Since consolidation from 3QFY13, the company sold 0.4mt of cement with an EBITDA loss of Rs. 90mn excluding incentives. However, DBL has launched its brand “Dalmia” (replacing Adhunik) in the key markets of North-East from Jan-13. Higher utilizations coupled with better operating efficiencies would lead to better profitability in FY14-15E, in our view. Expansion plans: DBL is currently working on two separate expansions, (1) 2.5mt greenfield capacity in Belgaum, Karnataka at a total capex of Rs. 13.4bn, of which Rs. 5bn is spent till date. Commissioning is expected by 1HFY15; and (2) 0.9mt grinding unit and 1mt in clinkerisation in Assam at a total capex of Rs. 5bn, of which Rs. 1bn is spent till date. Post expansion, total grinding capacities would reach 15MT which is sizable and diversified. Debt levels: Gross debt as on 1QFY14 is ~Rs. 36bn. We expect DBL to incur ~Rs. 14-15bn of capex over the next two years. We expect debt to increase further by ~Rs.4-5bn, with peak debt levels to touch ~Rs. 40-41bn. Highlights of 1QFY14 results: DBL’s volumes grew 15.4% y-o-y to 1.6mt. However, dispatches from its South plants de-grew 4% y-o-y. Realisations/t de-grew 1.7% y-o-y and 3.6% q-o-q. EBITDA/t was Rs. 541/t vs. Rs. 732/t in 4QFY14. Revenues grew 9.8% y-o-y to Rs. 7bn, EBITDA de-grew by 39% to Rs. 1bn. PAT de-grew by 51% to Rs. 352mn. We downgrade FY14-15E EBITDA by 25% and 17% respectively to incorporate lower realisations and rupee depreciation. Our view: DBL is fast emerging as a sizeable cement player, with its current group capacity of ~17.1mt and will reach 21.8mt in 2-3 years time. At CMP, the stock is trading at an EV/t of Rs. 1,700/t and EV/EBITDA of 3.9x FY14E earnings. Key catalyst for the stock is integration and higher profitability from North-East plants and free-cash generation at consolidated level. We maintain our BUY rating with a SoTP based target price of Rs. 140 (earlier Rs. 200).