Dalmia Bharat Ltd. BUY STOCK POINTER. Target Price `625 CMP `469 FY16E EV/EBITDA 8.9x

Transcription

1 STOCK POINTER Dalmia Bharat Ltd. BUY Target Price `625 CMP `469 FY16E EV/EBITDA 8.9x Index Details Sensex 25,589 Nifty 7,649 BSE 1 7,746 Industry Cement Scrip Details Mkt Cap (` cr) 3,612 BVPS (`) O/s Shares (Cr) 8.1 Av Vol (Lacs).1 52 Week H/L 59/95 Div Yield (%).5 FVPS (`) 2. Shareholding Pattern Shareholders % Promoters 62.8 DIIs 3.3 FIIs 1.9 Public 22.9 Total 1. Dalmia Bharat, with a group capacity of 24 MTPA (by December 214) has successfully consolidated its position in the Indian cement industry. Through sustained organic expansion and strategic acquisitions, Dalmia Bharat has catapulted to the position of the fourth largest cement manufacturer in India. With its expanded capacity, it is well-geared to capitalize on the anticipated pick-up in the investment cycle. We expect Dalmia Bharat to post healthy revenue and earnings growth over FY15-FY16. Revenues are likely to grow at a CAGR of 36% to `5428 crore and PAT to grow to `44 crore in FY16 (from a loss of Rs 8.4 crore in FY14). We initiate coverage on Dalmia Bharat as a BUY with a Price Objective of `625 representing a potential upside of 33% over a period of 18 months. At the CMP of `469, the stock is trading at an EV/EBITDA multiple of 7.4x FY16E and at an EV/Tonne of cement capacity (including OCL India s capacity) in FY16 of $61. The replacement cost currently is in the range of US$12-14 per tonne. Our optimism regarding the company s prospects is based on the following: Dalmia vs. Sensex Dalmia Bharat has successfully diversified its presence in the lucrative cement-deficit East and North East India region through stake acquisitions in Adhunik Cements, Calcom and OCL India. Further, creation of the Telangana state is expected to help ease the demand-supply imbalance in the South. Dalmia Bharat s on-going capacity expansion is expected to be commissioned in December 214. The timing of the expansion is ripe as the investment cycle in expected to revive over FY15-FY16. Key Financials (` in Cr) Y/E Mar Net EPS EPS Growth RONW ROCE P/E EV/EBITDA EBITDA PAT Sales (`) (%) (%) (%) (x) (x) E E of 22 - Thursday 7 th August, 214

2 Operating efficiencies in the form of captive power plant, limestone reserves, and lower freight costs augur well for the company against the backdrop of rising input costs. Further, cement prices in the South have already witnessed a spike of 1-2% since the start of June 214. With an improved demand scenario and firm cement prices, we expect Dalmia Bharat s EBITDA margin to expand to 22% in FY16 from 14% in FY14. Higher than expected ramp-up in utilization of the new capacity in Belgaum, Karnataka and/or in its existing facilities and further expansion in EBITDA margin are upside triggers to our Price Objective. Capacity expansion to fuel revenue growth Dalmia Bharat has grown from a capacity of 25 TPD at incorporation in 1939 to a total group capacity of 24.1 MTPA (by December 214). Post completion of the ongoing capacity expansion, Dalmia Bharat will emerge as the fourth largest player in the cement industry. We expect gross cement revenues to clock a 2 year CAGR of 36% driven by 26% growth in cement volumes. Cement realisations have already witnessed a spike of 1%-2% in the South since the start of June 214. We expect realizations to increase at a 8% CAGR over FY15-FY16E. We expect aggregate effective capacity utilizations to improve from 56% in FY14 to 61% in FY16. Moving to lucrative East and North eastern markets From a pre-dominantly Southern India presence, Dalmia Bharat has successfully diversified its presence in the lucrative East and North eastern regions through stake acquisitions in OCL India (Odisha), Adhunik Cements (Meghalaya) and Calcom Cements (Assam). The recent greenfield capacity expansion in Belgaum, Karnataka provides access to South Maharashtra markets as well. Dalmia Bharat s revenue proportion from the South has declined from 1% in FY11 to 79% in FY14. With healthy demand growth expected in the East and North East, acquisition of JP Bokaro Cements and capacity expansion in Calcom, the revenue proportion from South is further expected to reduce to ~6% in FY16. Valuation We initiate coverage on Dalmia Bharat as a BUY with a Price Objective of `625 representing a potential upside of 33% over a period of 18 months. At the CMP of Rs 469, the stock is trading at an EV/EBITDA multiple of 7.4x FY16E and at an EV/Tonne of cement capacity (including OCL India s capacity) in FY16 at $61. The Price Objective is derived by the SOTP method. The replacement cost currently is in the range of US$12-14 per tonne. - 2 of 22- Thursday 7 th August, 214

3 Company Background Dalmia Bharat is a holding company with 85% stake in Dalmia Cement Bharat and a 1% stake in Dalmia Power Ltd. Incorporated in 1939, Dalmia Bharat has grown to become the fourth largest cement manufacturer in India. The group capacity (including its 48% associate, OCL India s capacity) will expand to 24.1 MTPA in December 214 from 18.6 MTPA in FY14. Cement revenues contributed 89% of total revenues in FY14, with refractory sales, power sales and management services accounting for the remaining. Dalmia Bharat Corporate Structure Kohlberg Kravis Roberts' Dalmia Bharat Ltd. (Holding Co; listed) 15% 85% 1% Dalmia Power Ltd. Dalmia Cement Bharat Ltd. 26% 74% DCB Power Ventures Adhunik Cements (1%) Calcom Cement India (76%) OCL India (48%) Bokaro Cement (74%) Capacity expansion and regional diversification spell favorable prospects Dalmia Bharat has grown from a capacity of 25 TPD at incorporation to a total group capacity of 24.1 MTPA, expected to be commissioned by December 214. Post the expansion, Dalmia Bharat will emerge as the fourth largest player in the cement industry. - 3 of 22- Thursday 7 th August, 214

4 Dalmia Bharat s Growth Timeline Incorporated with a grinding capacity of 25 TPD Timeline Expanded capacity from 1.5MTPA to 3.5MTPA Greenfield plant commissioned with a capacity of 2.5 MT 27MW power plant commissioned to back the expanded capacity Calcom Acquired Acquired 5% stake in Kolkata based Calcom in January 212 for Rs 238 crore Further increased stake by 26% at a price of Rs crore Calcom s capacity expansion plan was under progress when it was acquired Adhunik Acquired 1% stake in Meghalaya based Adhunik Cements in September 212 for Rs 56 crore Adhunik, with a capacity of 1.5 MTPA, enjoys a 1% market share in NE region ( other players are Star Cement, Topcem., Adhunik, Calcom) It also has a 25MW Captive Power Plant Major Markets: North East and West Bengal; lead distance of 25 kms from Guwahati the main market Acquired 74% stake in Bokaro Cements in March 214 from Jaypee Group for Rs 69 crs; plant is running at an average utilization levels of 7%; major markets are West Bengal, Bihar and Jharkhand; 3 year contract for clinker and 3 year contract for slag Greenfield capacity expansion of 2.5MTPA in Karnataka backed by captive Power plant expected to commission in December MTPA grinding capacity and 1 MTPA clinker capacity expansion in Calcom expected to commission in December 214 OCL India expanded capacity from 5.4 MTPA to 6.8 MTPA in March 214 FY15: Group Capacity of 24.1 MTPA; 4 th largest in India by Capacity Source: Dalmia Bharat, Ventura Research Organic expansions and stake acquisitions have catapulted position Ultratech Cement Ltd. ACC Ltd. Ambuja Cements Ltd. Dalmia Bharat Shree Cement Ltd. India Cements Ltd. FY16E capacity ( in mtpa) Source: Ventura Research - 4 of 22- Thursday 7 th August, 214

5 Capacity expansion to fuel revenue growth Dalmia Bharat is in the process of expanding its capacity from 17.2 MTPA in FY13 to 24.1 MTPA by December 214. The expansion details are as follows: Capacity expansion details Details ( in MTPA) Existing Under Expansion Expected Commissioning Capex ( in Rs Crore) FY14 Capacity 17.2 Organic expansion Karnataka, Belgaum ( Dalmia Cement). 2.5 Dec Assam, Lanka (Calcom) Dec Assam, Umrangshu (Calcom- Clinker Capacity).3 1. Dec-14 West Bengal, Medinipur (OCL India) 1.4 Mar-14 5 Total capacity 4.8 Inorganic expansion Acquired 74% stake in Bokaro Cements 2.1 Mar Total expansion 6.9 FY15 Capacity 24.1 The capex has been funded in debt-equity ratio of 2:1. The company is also increasing its clinker capacity at Calcom from.3 MTPA to 1.3 MTPA to support the expansion in grinding capacity. With the expanded capacity and the improving demand prospects given the anticipated revival in the investment cycle, we expect Dalmia Bharat to report healthy revenue growth in FY15-FY16. Dalmia Bharat Revenue break-down Cement FY11 FY12 FY13 FY14 FY15E FY16E Volumes ( in MTPA) % growth 17.4% 11.3% 11.1% 2.% 32.5% Average Gross Realisations per tonne % growth 17.5% 6.% -5.6% 1.5% 4.7% Gross Revenues ( in Rs Crore) % growth 37.9% 18.% 4.9% 32.6% 38.6% We expect gross cement revenues to clock a 2 year CAGR of 36% driven by 26% growth in cement volumes. Gross cement realisations have already witnessed a spike of 1%-2% across regions since June 214 and we expect the uptrend to continue through FY16 (8% CAGR over FY15-FY16E). We expect aggregate effective capacity utilizations to improve to 59% and 61% in FY15 and FY16-5 of 22- Thursday 7 th August, 214

6 respectively from 56% in FY14. We expect utilizations in the southern based plants i.e. in Ariyalur, Dalmiapuram and Kadapa to increase to 65-7% levels in FY15-16 from ~55% levels in FY14. While the surplus situation is expected to persist in the south; demand is expected to pick-up gradually. The resolution of the Telangana issue is a positive. We have assumed effective utilsations levels of 2% and 35% in FY15 and FY16 respectively for the new capacity of 2.5 MTPA to be commissioned in Karnataka in December 214. A typical greenfield plant in a new market takes about 2-3 years to reach 65% utilization levels depending on the market conditions. We expect utilsation levels in Adhunik Cements (Meghalaya) to improve to 55% and 7% in FY15 and FY16 respectively from 4%- 45% in FY14. The increased thrust of the new government towards the development of North East India is a big boost. Calcom was operating at low utilization levels due to the absence of clinker capacity. With the expansion in clinker capacity coupled with favorable demand prospects, we expect utilizations to ramp up gradually. We have assumed 4% utilization levels in FY16, from ~2% in FY14. JP Bokaro Cements is an operational facility operating at ~7% utilizations levels. We have assumed similar utilization levels going forward. Moving to lucrative East and North eastern markets From a pre-dominantly Southern India presence, Dalmia Bharat has successfully diversified its presence in the lucrative east and north eastern regions through stake acquisitions in OCL India (Odisha), Adhunik Cements (Meghalaya) and Calcom Cements (Assam). The recent greenfield capacity expansion in Belgaum, Karnataka provides access to South Maharashtra markets as well. - 6 of 22- Thursday 7 th August, 214

7 Diversified Geographic Presence Calcom, Lanka, Assam, Grinding capacity 1.3 MTPA; 2.2 MTPA by November 214 Adhunik Cements, Meghalaya, Grinding capacity 1.5 MTPA Calcom, Umrangshu, Assam, Clinker capacity.3 MTPA; 1.3 MTPA by November 214 Bokaro Cement, Jharkhand, Grinding capacity 2.1MTPA OCL India, Rajgangpur, Odisha, Grinding capacity 4 MTPA OCL India, Kapilas, Odisha, Grinding capacity 1.4 MTPA OCL India,, Medinipur, West Bengal, Grinding capacity 1.4 MTPA Belgaum, Karnataka, Grinding Capacity 2.5 MTPA by November 214 Kadapa, AP Grinding capacity 2.5 MTPA Historically, the Southern markets Ariyalur, Tamil Nadu, Grinding capacity 2.5 MTPA Dalmiapuram, Tamil Nadu, Grinding capacity 4 MTPA Source: Dalmia Bharat, Ventura Research Dalmia Bharat s revenue proportion from the South has declined from 1% in FY11 to 79% in FY14. With healthy demand growth expected in the East and North East, acquisition of JP Bokaro Cements and capacity expansion in Calcom, the revenue proportion from South is further expected to reduce to ~6% in FY of 22- Thursday 7 th August, 214

8 Dependence on Southern markets gradually reducing 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 1% 1% 85% 76% 7% 62% FY11 FY12 FY13 FY14 FY15E FY16E South Assam Jharkhand Meghalaya Macro factors turning favourable With a pro-growth government at the helm, the prospects of the cement industry are expected to improve in the coming 2-3 years. The Finance Minister, in the recently concluded Union Budget, has allotted `53,76 crore for the development of the North Eastern region; of which `37,88 crore is towards planned investment in highways and roads. Situation in South is expected to improve with the resolution of the Telangana issue and revival of investment cycle Cement prices in the south have witnessed a spike of 1-2% since June 214, which will help lessen the price disparity in South India. With an expanded capacity and diversified presence, Dalmia Bharat is well positioned to benefit from the revival in the industry. - 8 of 22- Thursday 7 th August, 214

9 FY11 FY12 FY13F FY14F FY15E FY16E Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 June 214 Cement Industry prospects to improve Pan India utilizations expected to improve Cement prices increase in May-June In MTPA 8% 78% 76% 74% 72% 7% 68% 66% 64% 62% 6% Capacity Production Consumption Utilisation North Central East West South All India Utilisations to remain stable in North India Surplus capacities to restrict utilizations to 6-65% in the South In MTPA FY11 FY12 FY13P FY14F FY15E FY16E 86% 84% 82% 8% 78% 76% 74% 72% 7% In MTPA FY11 FY12 FY13P FY14F FY15E FY16E 8% 7% 6% 5% 4% 3% 2% 1% % Capacity Consumption Production Capacity Utilisation (RHS) Capacity Consumption Production Capacity Utilisation (RHS) - 9 of 22- Thursday 7 th August, 214

10 Utilizations to remain stable in cement deficit Central India Utilizations could pick up in the deficit Eastern Region In MTPA FY11 FY12 FY13P FY14F FY15E FY16E 88% 87% 86% 85% 84% 83% 82% In MTPA FY11 FY12 FY13P FY14F FY15E FY16E 9% 88% 86% 84% 82% 8% 78% 76% 74% 72% Capacity Consumption Production Capacity Utilisation (RHS) Capacity Consumption Production Capacity Utilisation (RHS) Source: Dalmia Bharat, Ventura Research Utilisations to show marginal improvement in West In MTPA FY11 FY12 FY13P FY14F FY15E FY16E 8% 79% 78% 77% 76% 75% 74% 73% 72% 71% Capacity Consumption Production Capacity Utilisation (RHS) Source: Dalmia Bharat, Ventura Research - 1 of 22- Thursday 7 th August, 214

11 Operating efficiencies an added advantage Adequate captive limestone reserves: Around 1.4 tonnes of limestone is required in the manufacturing of 1 tonne of cement. South India has abundant limestone reserves, which is also the reason for surplus cement capacities in that region. Dalmia Bharat has adequate limestone mining rights to service requirements of its plants in the South, including the greenfield facility set up in Karnataka. Further, it has enough reserves to meet double the existing capacities at the Calcom and Kadappa units. OCL India s current limestone requirements are met entirely by its Lanjiberna Limestone and Dolomite mine having a reserve life of 27 years. 25.% 2.% 15.% 1.% 5.% RM costs lower compared to peers.% FY11 FY12 FY13 FY14 Dalmia Cements Madras Cements The India Cements ACC Ambuja Ultratech Captive Power plants meet most of the energy requirements: Dalmia Bharat has a total power generation capacity of 97 MW, which will increase to 124 MW by December 214. The plant is operating at optimum utilizations and meets Dalmia Bharat s power requirements. OCL India has a power generation capacity of 54MW which meets majority of its power requirements of 22- Thursday 7 th August, 214

12 Plant Power capacities across Facilities Power Capacity ( in MW) Dalmiapuram 45 Ariyalur 27 Calcom Kadappa Power purchased from grid Power purchased from grid Adhunik Cement 25 Belgaum Karnataka 27 Bokaro Cements Power purchased from grid OCL India 54 Surplus power produced at plants is sold to the grid. Dalmia Bharat has progressively moved from high cost imported coal to the usage of lignite and pet coke. The power plant utilizes 75% lignite sourced from Neyveli Lignite Corporation with the remaining being imported coal. The company uses 7% pet coke for the kiln; the remaining is imported coal. OCL India has 4% coal linkage from Mahanadi Coal Fields, 2% is purchased at e- auction rates and the remaining requirement is imported. Further, the company has, over the years, improved efficiencies in power consumption. The power consumption in Southern based plants has reduced from 76 Kwh/tonne in FY11 to 72 Kwh/tonne in FY14. Efficiency in power consumption in South (in KWH/T) FY11 FY12 FY13 FY14 Total required per tonne - 12 of 22- Thursday 7 th August, 214

13 Lead distance lower than industry average: Dalmia Bharat s and OCL India s average distance to the end-markets is about 35 kms, which is lower than the industry average of 4-45 kms. 24.% 22.% 2.% 18.% 16.% 14.% 12.% Freight cost lower than peers 1.% FY11 FY12 FY13 FY14 Dalmia Cements Madras Cements The India Cements ACC Ambuja Ultratech Key Risks Coal Costs: In the absence of coal linkages, Dalmia Bharat relies on imported coal to meet its partial requirement in the power plant as well as kiln. Any adverse movements in imported coal prices will impact the margins. Concentration to South: Even as the company is diversifying its geographic presence, South continues to be the major end-market for Dalmia. Utilisations and realizations in the South are lower than pan India average, leading to margin pressure for players. The situation may continue to be subdued if demand does not pick up as anticipated. Financial Performance Dalmia Bharat s Q1FY15 revenues de-grew 4% Y-o-Y to ` 699 crore owing to a 2% YoY drop in volumes. The Adhunik facility was non-operational for 2 days in Q1FY15, which in turn also impacted the operations of Calcom, which currently relies on clinker supply from Adhunik. Realisations remained flat YoY at `426 per tonne in Q1FY15. Drop in sales and under-absorption of fixed costs due to plant break-down resulted in ~8 bps drop in EBITDA margin to 8.3% in Q1FY15. The steep drop in EBITDA margins led the company to report a net loss in Q1FY15. The company s net loss of `54.5 crore was pruned by OCL s share of profit of ` of 22- Thursday 7 th August, 214

14 crore for the quarter. Adjusted for the minority interest, Dalmia Bharat reported a loss of `27.3 crore at the Adj PAT level. Financial Outlook Quarterly Financial Performance (` in crore) Particulars Q1FY15 Q1FY14 FY14 FY13 Net Sales Growth % Total Expenditure EBIDTA EBDITA Margin % Depreciation EBIT (EX OI) Other Income EBIT Margin % Interest Exceptional items.... PBT Margin % Provision for Tax PAT Share of Profit in Associate Less:Miniority Interest Adjusted PAT PAT Margin (%) Source: Dalmia Bharat, Ventura Research We expect Dalmia Bharat s revenues to grow at a 2 year CAGR of 36% to `5428 crore driven by 26% growth in cement volumes and 8% realization growth. The volume growth is due to: Commissioning of expanded capacities in December 214 Acquisition of JP Bokaro Cements which will get consolidated in the company s financials from H2FY15 and, Improvement in utilization levels of the existing facilities Cement sales will continue to contribute over 9% of revenues. Dalmia Bharat s EBITDA margin dropped ~9 bps to 14% in FY14. The cement industry went through a rough patch in FY14, with majority of the players reporting a drop in operational performance. Dalmia Bharat s operational performance turned weak in FY14 as realizations dropped and input costs continued to rise of 22- Thursday 7 th August, 214

15 FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15E FY16E EBITDA margin drops in FY14 PAT margins under pressure in FY14 28.% 2.% 26.% 24.% 22.% 2.% 18.% 16.% 14.% 12.% 1.% FY11 FY12 FY13 FY14 15.% 1.% 5.%.% -5.% -1.% FY11 FY12 FY13 FY14 Dalmia Cements Madras Cements The India Cements Dalmia Cements Madras Cements The India Cemen ACC Ambuja Ultratech ACC Ambuja Ultratech Source: Dalmia Bharat, Ventura Research With the improvement in external environment, we expect operational performance of cement players to stabilize in FY15 and turn healthy in FY16. Accordingly, we expect EBITDA margins to expand to ~17% in FY15 and revert to its four year historical average of 22% in FY16E. We expect Dalmia Bharat to report a net profit (after considering the share of profit from OCL India and minority interest) of Rs 78.2 crore in FY15 and `44 crore in FY16 from a loss of `8.4 crore in FY14. We expect the company to report a PAT margin of 7.4% and an EPS of `49.7 in FY16. OCL s share of profit is expected to grow from `48.7 crore in FY14 to `14.8 crore in FY16 driven by healthy revenue growth with capacity expansion and improving demand outlook. OCL s revenue is expected to grow at a 2 year CAGR of 26% to Rs 367 crore, while PAT is expected to grow at a 2 year CAGR of 65% to Rs 292 crore. Revenues to grow; Margins to improve EPS and Return ratios to improve 6 Rs.Crore 3% 6 in Rs 12.% 5 25% 5 1.% % 15% 1% 5% % % 6.% 4.% 2.% -5%.% -1-2.% Revenues PAT margin (RHS) EBITDA margin (RHS) Source: Dalmia Bharat, Ventura Research EPS RoE (RHS) RoCE (RHS) Source: Dalmia Bharat, Ventura Research - 15 of 22- Thursday 7 th August, 214

16 The acquisition of 74% stake in JP Bokaro Cements is likely to add `22 crore worth of debt in the books of Dalmia Bharat. With the repayment of the debt raised for the expansion as well as from the stake acquisition three years away, the debt-equity ratio of the company is likely to increase to 1.5x in FY16 from 1.3x in FY14. The management has guided us with a peak net debt of `5182 crore at FY15 end; gross debt of `586 crore and cash and cash equivalent (including current investments) of `68 crore. We have assumed a normalized net debt of `455 crore in FY16. Leverage increasing but at comfortable levels 3. in (x) FY12 FY13 FY14 FY15E FY16E Interest Coverage D/E - 16 of 22- Thursday 7 th August, 214

17 Valuation We initiate coverage on Dalmia Bharat as a BUY with a Price Objective of `625 representing a potential upside of ~33% over a period of 18 months. At the CMP of `469, the stock is trading at an EV/EBITDA multiple of 7.4x FY16E and at an EV/Tonne of cement capacity (including OCL India s capacity) in FY16 at $61. The Price Objective is derived by the SOTP method. The replacement cost currently is in the range of US$12-14 per tonne. At our price objective, the implied EV/Tonne of cement capacity in FY16 is $7; excluding OCL India s capacity, the EV/Tonne is $85. Upsides to our Price Objective Valuation Dalmia Cement FY16 Target EV/EBITDA multiple 8. FY16E EBITDA 1,187 EV 9,498 Debt (including minority interest) Cash 655 Investment in OCL 576 Market Cap (Rs crore) 393 DBL's OCL stake Stake 48% Target EV/EBITDA 5. FY16 EBITDA 629 EV 3146 Debt 23 Cash 135 Market Cap 351 Holding Company discount 2% Adj Mkt Cap ( Rs crore) 2,441 SOTP Dalmiya Bharat Market Cap 393 OCL Market Cap India adjusted for stake 1172 Total 574 Number of Shares 8.1 Target price 625 CMP 469 Upside 33% Source: Dalmia Bharat, Ventura Research Higher than expected ramp-up in utilization of the new capacity in Karnataka and/or in its existing facilities Higher than anticipated realization growth - 17 of 22- Thursday 7 th August, 214

18 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun Dalmia Bharat EV/EBITDA Dalmia Bharat 6x 7x 8x 9x 1x As can be seen from the above chart, Dalmia Bharat s EV/EBITDA multiple has witnessed a significant expansion in the past few months. Dalmia Bharat has traded at an average EV/EBITDA multiple of 6.3x since 211. We have assigned a multiple of 8x, higher than historical average but still lower than the current trading range. Ultratech Cement, India s largest cement manufacturer has witnessed re-rating of the stock as and when the company has expanded capacities through the organic and inorganic routes. In our opinion, Dalmia Bharat too warrants a re-rating of the EV/EBITDA multiple to 8x, ~25% higher than its historical average Cement capacity expanded from 3.4 MnT in 24 to 48.9 MnT in Ultratech Cement EV/EBITDA trend Acquired Star Cement; capacity increased to 52 MT in Clinker capacity addition; cement capacity additions of 3.1 MTPA in Karantaka and Maharashtra Grinding unit of 1.6 MTPA comissioned in Orrisa; acquired 4.8MTPA unit in Gujarat; total capacity 62 MTPA Apr-6 Apr-8 Apr-1 Apr-12 Apr-14 EV/EBITDA multiple Source: Ventura Research - 18 of 22- Thursday 7 th August, 214

19 Ultratech EV/EBITDA multiple expansion Apr-6 Apr-8 Apr-1 Apr-12 Apr-14 EV 6X 7.75X 9.5X 11.25X 13X Source: Ventura Research EV/ Tonne Comparison Name EV/Tonne of cement capacity ( in $) EV/Tonne of Cement Sales ( in $) FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16 Ultratech Cement Ltd ACC Ltd Ambuja Cements Ltd Dalmia Bharat* Dalmia Bharat# India Cements Ltd Heidelberg Cement India Ltd * including OCL India # excluding OCL India Source: Ventura Research - 19 of 22- Thursday 7 th August, 214

20 Y/E Mar Net Revenue Peer Comparison EBITDA PAT EPS EPS (%) RONW (%) P/E (x) EV/EBITDA (x) OCL India E E ACC E E Ambuja Cement E E Ultratech Cement E E India Cement E E Dalmia Cement % E NA E % Heidelberg Cement E E Source: Ventura Research - 2 of 22- Thursday 7 th August, 214

21 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Dalmia Bharat P/E Dalmia Bharat 7x 8x 9x 1x 11x Source: Dalmia Bharat, Ventura Research Dalmia Bharat P/BV Dalmia Bharat.5x.75x 1.x 1.25x 1.5x Source: Dalmia Bharat, Ventura Research - 21 of 22- Thursday 7 th August, 214

22 Financials and Projections Y/E Mar, Fig in ` Cr FY 213 FY 214 FY 215E FY 216E Y/E Mar, Fig in Rs. Cr FY 213 FY 214 FY 215E FY 216E Profit & Loss Statement Per Share Data (Rs) Net Sales EPS % Chg Cash EPS Total Expenditure DPS % Chg Book Value EBITDA Capital, Liquidity, Returns Ratio EBITDA Margin % Debt / Equity (x) Other Income Current Ratio (x) Exceptional items.... ROE (%) PBDIT ROCE (%) Depreciation Dividend Yield (%) Interest Valuation Ratio (x) PBT P/E (x) Tax Provisions P/BV (x) Reported PAT EV/Sales (x) Minority Interest EV/EBIDTA (x) Share of profit from associates Efficiency Ratio (x) PAT Inventory (days) PAT Margin (%) Debtors (days) Freight cost as a % of sales Creditors (days) Balance Sheet Cash Flow statement Share Capital Profit Before Tax Reserves & Surplus Depreciation & Amortisation Minority Interest Working Capital Changes Long-Term Provisions Direct Taxes Paid and Others Long-Term Borrowings Operating Cash Flow Other Long-Term Liabilities Capital Expenditure Total Liabilities Dividend Received Gross Block Others Less: Acc. Depreciation Cash Flow from Investing Net Block Increase/(Decrease) in Loan F Capital Work in Progress Others Goodwill on Consolidation Interest Paid Non-Current Investments Cash Flow from Financing Net Current Assets Net Change in Cash Other Non-Current Assets Opening Cash Balance Total Assets Closing Cash Balance Ventura Securities Limited Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai 479 This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation of 22- Thursday 7 th August, 214

23 Annexure Cement Manufacturing Process Cost of Setting up a Cement Plant in India - 23 of 22- Thursday 7 th August, 214