BUY BUY DBEL IN CMP RS 130 TARGET RS 155 (+19%) OSC IN CMP RS 143 TARGET RS 214 (+50%) 30 Jan 11 Oct 11 Jul 12 Apr 13. Company Data (DBEL IN)

Transcription

1 Dalmia Bharat & OCL India Seems committed to re define efficiencies with capacity growth PhillipCapital (India) Pvt. Ltd. CEMENT: Management Meet Update 4 December 2013 We recently met up with the Management of Dalmia Bharat Limited (DBL) and its associate company OCL India Limited (OCL) to understand the strategy of the group going forward. Given it aggressive capacity expansions plans across South, East and North East India it will be very interesting to keep an eye on the group behavior. DBL has been one of the fastest growing capacities in the country with capacity CAGR of 46% (FY07 14E). Following are some of the key takeaways: All capacity expansions of Dalmia Cement Bharat Ltd. (DCBL the cement operating subsidiary of DBL) will be completed by end of September 2014 and the group s consolidated capacity will be ~22mn tonnes p.a. by then. Peak gross debt of DBL will stand at ~Rs48bn with average rate of interest at less than 11%. More than 35% of debt repayment of DBL will happen in the last 5 years of its 14 year long term debt tenure. DCBL has increased its stake in OCL to 47.2% and once can expect further increase in stake in OCL from DCBL in near future. Adhunik Cement Ltd. is now a 100% subsidiary of DCBL while stake in Calcom is at nearly 76%. Further increase in stake in Calcom will happen by end of FY17. Post completion of capacity expansions, capacity in South India will be at 11.5mn tonnes p.a., East (OCL) will be 6.7mn tonnes p.a. and North East will be 3.8mn tonnes p.a. Further capacity expansion plans are not yet laid down. DBL first looks forward to digest its newly expanded capacities. Given the bulk capacity addition by the industry in the previous few years, we believe this is a sensible move. Even industry leader UltraTech Cement commented something very similar in our recent meeting with its Management. However, DBL will keep its eyes open for any further inorganic growth opportunity which it may find attractive. DBL remains committed to its vision of being a pan India major in the longer run. Future capacity growth moves are more likely in regions where DBL does not enjoy a current presence. DBL seems committed to improvise on its efficiency parameters. Management seems confident of delivering an EBITDA/tonne of +Rs1000/tonne with all of its capacity in place. DBL claims to have the lowest lead distance in South India at 290 kms. Lead distance in East India is at 340kms while North East is at 450kms. Average lead distance for the company as a whole is at ~320kms. Usage of lignite (purchased from Neyveli Lignite) is now at 75% of total fuel consumption in power plants while usage of pet coke is at 35% in total fuel consumption in Kiln operations. DBL claims to have the lowest average consumption of electricity units in the industry its South operations (73 units). Integration of various brands (except OCL) into a single brand of Dalmia Bharat has proved to be very helpful in garnering a premium in realisations (especially North East region). Dalmia group is now in control of 16% market share in North East India, 14% in its key markets in South India (States of Tamil Nadu & Kerala) and 22% in State of Odisha. North East operations are subject to number of benefits from State and Central Governments. Few of the key benefits include 75% Capital Subsidy for Plant & Machinery for an Integrated Unit (35% for grinding unit); 10 years excise exemption and 7 years VAT subsidy for sales in North East India. Capital subsidy benefit for Adhunik Cement is received. As DBL is now aiming to be a Tier I player in the industry, it has started working on initiatives which are peculiar to Tier I players (pan India majors). Set up of Common Technical Services Team and Common Raw Material Procurement Team are some of such initiatives. Very clearly in our conversation, the Management sounded much serious about improvising on its efficiency parameters. Efficiency gain, in our view, will be the key to define and benchmark the valuation of cement companies in India from here on. BUY DBEL IN CMP RS 130 TARGET RS 155 (+19%) BUY OSC IN CMP RS 143 TARGET RS 214 (+50%) Company Data (DBEL IN) O/S SHARES (MN) : 81 MARKET CAP (RSBN) : 10.4 MARKET CAP (USDMN) : WK HI/LO (RS) : 204 / 95 LIQUIDITY 3M (USDMN) : 0.02 FACE VALUE (RS) : 2 Share Holding Pattern, % (DBEL IN) PROMOTERS : 78.6 FII / NRI : 0.2 FI / MF : 2.4 NON PROMOTER CORP. HOLDINGS : 2.4 PUBLIC & OTHERS : 16.2 Price Performance, % (DBEL IN) 1mth 3mth 1yr ABS REL TO BSE Price Vs. Sensex (Rebased values) Jan 11 Oct 11 Jul 12 Apr 13 DBL BSE Sensex Source: PhillipCapital India Research Other Key Ratios Rs mn FY13 FY14E FY15E Net Sales 27,906 27,838 33,519 EBIDTA 6,342 4,810 5,692 Net Profit 1, EPS, Rs PER, x EV/EBIDTA, x P/BV, x ROE, % Total debt/equity (%) Source: PhillipCapital India Research Vaibhav Agarwal ( ) vagarwal@phillipcapital.in Please refer to Disclosures and Disclaimers at the end of the Research Report.

2 Dalmia Bharat Limited Financials Income Statement Net sales 23,304 27,906 27,838 33,519 Growth, % Total income 23,304 27,906 27,838 33,519 Raw material expenses 2,496 2,955 2,906 3,620 Employee expenses 1,437 1,977 2,173 2,450 Other Operating expenses 13,814 16,632 17,949 21,757 EBITDA (Core) 5,556 6,342 4,810 5,692 Growth, % (24.1) 18.3 Margin, % Depreciation 1,817 2,059 2,457 2,495 EBIT 3,739 4,282 2,354 3,197 Growth, % (24.1) 18.3 Margin, % Interest paid 1,513 2,314 2,960 3,012 Other Non Operating Income Pre tax profit 3,244 3, ,252 Tax provided 1,229 1, Profit after tax 2,015 2, ,059 Others (Minorities, Associates) Net Profit 1,830 1, Growth, % (81.2) Net Profit (adjusted) 1,830 1, Unadj. shares (m) Wtd avg shares (m) Balance Sheet Cash & bank Debtors 1,355 2,416 2,184 2,563 Inventory 2,615 3,520 2,931 3,527 Loans & advances 4,124 9,048 7,572 8,970 Total current assets 8,794 16,030 13,292 15,730 Investments 11,935 11,804 21,220 21,220 Gross fixed assets 38,212 52,372 47,380 48,832 Less: Depreciation 3,663 5,723 8,180 10,675 Add: Capital WIP 1,165 5,503 12,025 12,098 Net fixed assets 35,714 52,152 51,226 50,255 Total assets 56,443 79,986 85,738 87,205 Current liabilities 6,000 9,818 6,932 8,352 Provisions Total current liabilities 6,455 10,476 7,594 9,149 Non current liabilities 16,808 33,332 41,617 40,562 Total liabilities 23,263 43,808 49,211 49,711 Paid up capital Reserves & surplus 28,746 30,841 31,176 32,031 Shareholders equity 33,180 36,178 36,527 37,495 Total equity & liabilities 56,443 79,986 85,738 87,205 Source: Company, PhillipCapital India Research Estimates Cash Flow Pre tax profit 3,244 3, ,252 Depreciation 1,817 2,059 2,457 2,495 Chg in working capital 307 2, Total tax paid Cash flow from operating activities 4,536 1,691 2,303 2,737 Capital expenditure 3 18,498 1,530 1,525 Chg in investments 5, ,417 0 Other investing activities Cash flow from investing activities 5,903 18,052 10,947 1,525 Free cash flow 1,367 16,361 8,644 1,212 Debt raised/(repaid) 2,371 16,138 8,284 1,055 Dividend (incl. tax) Cash flow from financing activities 2,513 16,697 8,249 1,146 Net chg in cash 3, Valuation Ratios & Per Share Data FY12 FY13 FY14E FY15E Per Share data EPS (INR) Growth, % (81.2) Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) 28.6 (5.8) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) Valuation PER (x) Price/Book (x) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) of 6

3 OCL India Limited Financials Income Statement Net sales 14,704 18,088 19,820 23,538 Growth, % Total income 14,704 18,088 19,820 23,538 Raw material expenses 5,108 4,681 5,867 6,874 Employee expenses ,025 Other Operating expenses 6,762 8,579 9,770 11,563 EBITDA (Core) 2,073 4,081 3,332 4,076 Growth, % (31.7) 96.8 (18.4) 22.3 Margin, % Depreciation 1,276 1,384 1,674 2,090 EBIT 798 2,697 1,659 1,986 Growth, % (31.7) 96.8 (18.4) 22.3 Margin, % Interest paid ,020 1,383 Other Non Operating Income Pre tax profit 380 2, Tax provided Profit after tax 318 1, Net Profit 318 1, Growth, % (72.2) (58.3) (3.7) Net Profit (adjusted) 318 1, Unadj. shares (m) Wtd avg shares (m) Balance Sheet Cash & bank 1,328 1,328 1,328 1,328 Debtors 1,207 1,485 1,627 1,932 Inventory 2,603 3,201 3,508 4,166 Loans & advances 1,239 1,524 1,670 1,983 Other current assets Total current assets 6,449 7,627 8,230 9,525 Investments 1,763 1,763 1,763 1,763 Gross fixed assets 18,281 19,767 25,667 31,068 Less: Depreciation 7,646 9,030 10,704 12,793 Add: Capital WIP 1,486 3,500 3,000 3,001 Net fixed assets 12,122 14,237 17,964 21,276 Total assets 20,333 23,627 27,957 32,563 Current liabilities 4,610 4,449 4,875 5,789 Provisions Total current liabilities 4,774 4,649 5,094 6,050 Non current liabilities 6,529 8,648 11,990 15,119 Total liabilities 11,303 13,297 17,085 21,169 Paid up capital Reserves & surplus 8,916 10,216 10,758 11,280 Shareholders equity 9,030 10,330 10,872 11,394 Total equity & liabilities 20,333 23,627 27,957 32,563 Source: Company, PhillipCapital India Research Estimates Cash Flow Pre tax profit 380 2, Depreciation 1,276 1,384 1,674 2,090 Chg in working capital 924 1, Total tax paid Cash flow from operating activities 2,579 1,646 2,168 2,379 Capital expenditure 476 3,500 5,400 5,402 Chg in investments 1, Cash flow from investing activities 2,163 3,500 5,400 5,402 Free cash flow 415 1,854 3,232 3,022 Debt raised/(repaid) 2,857 2,119 3,342 3,129 Dividend (incl. tax) Cash flow from financing activities 2,990 1,854 3,232 3,022 Net chg in cash 2, Valuation Ratios & Per Share Data FY12 FY13 FY14E FY15E Per Share data EPS (INR) Growth, % (72.2) (58.3) (3.7) Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) Valuation PER (x) Price/Book (x) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) of 6

4 Recommendation History Dalmia Bharat B (TP 294) 150 B (TP 155) B (TP 237) 100 B (TP 172) 50 1/2/2012 4/12/2012 7/19/ /31/2012 2/11/2013 5/24/2013 9/3/ OCL India B (TP 283) B (TP 212) B (TP 214) 150 1/1/2013 3/12/2013 5/27/2013 8/5/ /21/2013 Source: Company, PhillipCapital India Research 4 of 6

5 Management Vineet Bhatnagar (Managing Director) Jignesh Shah (Head Equity Derivatives) (91 22) (91 22) Research Automobiles Engineering, Capital Goods Pharma Deepak Jain (9122) Ankur Sharma (9122) Surya Patra (9122) Priya Ranjan (9122) Aditya Bahety (9122) Retail, Real Estate Banking, NBFCs Infrastructure & IT Services Abhishek Ranganathan, CFA (9122) Manish Agarwalla (9122) Vibhor Singhal (9122) Neha Garg (9122) Sachit Motwani, CFA, FRM (9122) Varun Vijayan (9122) Quant Consumer, Media, Telecom Metals Shikha Khurana (9122) Naveen Kulkarni, CFA, FRM (9122) Dhawal Doshi (9122) Ennette Fernandes (9122) Dharmesh Shah (9122) Database Manager Vivekanand Subbaraman (9122) Vishal Randive (9122) Cement Oil&Gas, Agri Inputs Gauri Anand (9122) Sr. Manager Equities Support Vaibhav Agarwal (9122) Deepak Pareek (9122) Rosie Ferns (9122) Saurabh Rathi (9122) Economics Anjali Verma (9122) Sales & Distribution Kinshuk Tiwari (9122) Sales Trader Execution Ashvin Patil (9122) Dilesh Doshi (9122) Mayur Shah (9122) Shubhangi Agrawal (9122) Suniil Pandit (9122) Kishor Binwal (9122) Sidharth Agrawal (9122) Dipesh Sohani (9122) SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06 00 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL USA Tel (1) Fax: (1) Contact Information (Regional Member Companies) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (60) Fax (60) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, C Block, 2 nd Floor, Modern Center, Jacob Circle, K. K. Marg, Mahalaxmi Mumbai Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) of 6

6 Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future performance. This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst s personal views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst s compensation was, is or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the stock(s) covered in this research report. Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities andexchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: 2nd Floor, C Block, Modern Centre, Mahalaxmi, Mumbai of 6