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MOSL: DALMIA BHARAT (Buy) - Impacted by weak realization, higher cost - cutting EPS 28-40%




Motilal Oswal Securities Ltd.


05 Nov 2013





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Dalmia Bharat (DBEL IN, Mkt Cap USD0.2b, CMP INR121, Buy) Jinesh K Gandhi (Jinesh@MotilalOswal.com) / Sandipan Pal (Sandipan.Pal@MotilalOswal.com) Cement realizations down ~INR5/bag QoQ: DBEL’s 2QFY14 performance is not comparable on YoY basis due to consolidation of North East acquisitions from 3QFY13. Volumes grew 11% YoY (2% QoQ) to 1.64m tons. Pure Cement realizations declined ~INR5/bag QoQ (INR6/bag YoY). Consolidated revenue grew 6% YoY to ~INR7.1b. EBITDA declines 27% QoQ: EBITDA declined 58% YoY and 27% QoQ to ~INR730m, implying EBITDA/ton of ~INR446 (down INR180 QoQ, INR730 YoY). In 2QFY14, DBEL had received ~INR173m of excise and VAT incentives, which was accounted in operating other income. Including these incentives, EBITDA/ton would be ~INR551 (v/s comparable EBITDA/ton of ~INR751 in 1QFY14). Net loss of ~INR261m: Profitability declined on weak realizations and cost push of ~3% QoQ, higher lead distance and other expenses (~INR100m of MTM Fx losses on payables). Further, lower other income impacted PAT, as it reported net loss of ~INR261m (v/s PAT of ~INR352m in 1QFY14 and ~NR694m in 2QFY13). Other highlights: In 2QFY14, DBEL (a) acquired balance stake of 22.5% in Adhunik Cement, as the erstwhile promoters have received incentives from the government, and (b) increased stake in OCL by 1.72% to 47.09% through creeping acquisition. As of September 2013, net debt stood at ~INR33.8b (v/s ~INR28b as of March 2013). Cutting estimates; maintain Buy: We are cutting our FY14/FY15 EPS estimates by 40%/36% to ~INR14.5/14 to factor in (a) weak realizations, (b) higher cost, and (c) higher tax. DBEL trades at an EV of 5.3x FY15E EBITDA and USD41/ton for 15mtpa of pro-rata capacity (~22mtpa capacity under control). Maintain Buy, with a lowered target price of INR190 (SOTP basis).

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