04

Company Background

Dalmia Bharat Ltd, incorporated in the year 1939, is India’s fifth largest cement manufacturing company by capacity (26.50, MTPA). It has got 13 manufacturing plants spread across in 9 states and contributes around ~5% of the entire country’s cement capacity. Dalmia Bharat possesses a diversified portfolio of value added brands like Dalmia Cement, Dalmia DSP, Konark Cement and a range of speciality products including SRPC, Dalmia Magic and Infragreen used in oil wells, railway sleepers. It has significant presence in Tamilnadu, Andhra Pradesh and Karnataka with 12.10 mtpa and East and North East with 14.40 mntpa.

Investment Rationale

Dalmia Bharat reported highest ever quarterly EBIDTA at Rs.702 crores in Q2FY21. EBIDTA/tonne increased by 37.63% YoY to Rs1462.50/tonne and total cost/tonne declined 9.67% YoY in Q2FY21. Power & fuel cost and other expenses declined by 18.60% & 13.94% YoY respectively. Owing to strict control over expenses like advertising, travel, administration etc. depreciation declined 25.62% YoY to Rs.302 crores, while interest declined 28% YoY to Rs74 crores. Correspondingly the consolidated net profit increased by 759.26% to Rs.232 crores.

DBL is bullish on demand surge in cement industry post lockdown and is on an expansion spree. It is in the process of expanding its present capacity by 40% to 37.3mtpa from 26.5mtpa which is going to get operational in next 6-18 months. The company forayed into manufacturing in Maharashtra after the acquisition of Murli Industries, an integrated plant with an installed capacity of 3 mtpa and a 50 MW thermal power plant. The company had invested Rs.410 crores for its revival in 9-12 months and the plant to be commissioned by 3QFY22. The plant has sufficient limestone availability for the next 20 years along with the government incentive for next 7 years.

The company achieved Net Debt to EBIDTA at 0.87x against 1.55x times a year ago. The company had repaid gross debt worth Rs.246 crores in Q2FY21 which currently stands at Rs.5213 crores in Q2FY21 from Rs.5459 crores in Q1FY21.The Company aims to be net debt free by the end of FY23. Cost of debt has come down significantly from 10% in March FY15 to 7.1% in September FY20.

The company has guided Rs.400 crores capex for capacity expansion in east and Rs.500 crores expansion on various improvement projects including WHRS (Waste Heat Recovery System).

DBL intends to become carbon negative by 2040 and committed to the Climate Group’s RE100 campaign (100% renewable electricity use by 2030) and EP100 (doubling the energy productivity by 2030).  

Recommendation 

Improving demand and acquisition of Murli Industries are expected to be key growth drivers for DBL. Moreover, capacity expansion, cost reduction measures, commissioning of WHRS would lead to margin expansion along with reduction in cost of debt and focus of the company in becoming debt free by FY23 would again lead to better numbers. Considering Rural Demand, Better Realizations, Government focus on infrastructure and affordable housing, we believe the stock can post improved performance.  We value the stock at 10x FY22 EV/EBITDA to arrive at a Target of Rs.1170.

- the write is research head, AUM Capital.