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MOSL: DALMIA BHARAT - Acquires JPA's Bokaro grinding unit at ~USD90/ton




Motilal Oswal Securities Ltd.


26 Mar 2014





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DALMIA BHARAT: Acquires JPAs Bokaro grinding unit at ~USD90/ton; Strengthens its presence in East, but net debt:EBITDA rise to ~4.6x FY16 (DBEL IN, Mkt Cap USD0.3b, CMP INR229, TP INR319, 39% Upside, BUY) Acquires JPAs 74% stake in 2.1mt grinding unit producing slag cement at Bokaro, with 30 year supply arrangement for clinker and slag, for EV of USD90/ton and cash out flow of ~INR6.9b. Favorable market mix and efficient operations drives superior profitability, with EBITDA/ton of ~INR1,450/INR985 in FY13/9MFY14. Good strategic fit for DBEL as it will strengthen its presence in East and drive synergies in form of a) brand premium of ~INR200/ton for OCL vis--vis Jaypee and b) logistic optimization through cement swap driving estimated savings of ~INR200/ton. Deal to be PAT accretive from FY16, with EPS contribution of ~INR3.8. However, DBELs gearing increases further with net-debt (on pro-rata basis) estimated to increase to ~INR42b/INR40b in FY15/FY16, implying net debt:equity of 7x/4.6x. The stock trades at 9.8x/6.5x FY15/FY16 EV/EBITDA and USD58/56 EV/Ton. Maintain Buy with TP of ~INR319 (SOTP).

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