BUY CMP 167.60 Target Price 184.00 DALMIA BHARAT LTD Result Update: Q2 FY14 DECEMBER 31 st 2013 ISIN: INE439L01019 Index Details Stock Data Sector Cement BSE Code 533309 Face Value 2.00 52wk. High / Low (Rs.) 204.00/95.00 Volume (2wk. Avg.) 5774 Market Cap (Rs. in mn.) 13609.12 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY13A FY14E FY15E Net Sales 1906.00 2115.66 2327.23 EBITDA 533.80 725.25 809.41 Net Profit 413.30 550.92 617.00 EPS 5.09 6.78 7.60 P/E 32.93 24.70 22.06 Shareholding Pattern (%) 1 Year Comparative Graph DALMIA BHARAT LTD BSE SENSEX SYNOPSIS Dalmia Bharat Limited engages in the manufacture and marketing of cement in India. The company s net sales registered 19.13% increase and stood at a record Rs. 547.90 million from Rs. 459.90 million over the corresponding quarter last year. The company s net profit slightly increased to Rs. 188.50 million against Rs. 186.70 million in Q2 FY13, an increase of 0.96%. EBIDT for the quarter was to Rs. 227.90 million from Rs. 206.90 million in Q2 FY13, an increase of 10.15%. The Company s greenfield capacity of 2.5 MnT at Belgaum, Karnataka setting up this greenfield project is estimated at Rs. 13400 million and is expected to be fully operational by FY15. The consolidated total income from operations was Rs. 7400 million for the period as against Rs. 6840 million in Q2 FY13, an increase of 8%. The Cement industry is expected to add around 14 MnT of capacity in remaining period of FY14. During the quarter, the Company's subsidiary, Dalmia Cement (Bharat) Ltd, has acquired remaining 22.50% stake in Adhunik Cement Ltd, makiing it a wholly owned subsidiary. During the quarter, the Company's subsidiary Dalmia Cement (Bharat) Ltd has purchased additional stake of 1.72% in OCL India Ltd taking the total stake to 47.09%. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 24% over 2012 to 2015E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Dalmia Bharat Ltd. 167.60 13609.12 5.09 32.93 2.52 75.00 Ultratech Cement Ltd. 1763.35 483563.40 82.55 21.36 3.17 90.00 Ambuja Cements Ltd. 182.75 282399.60 7.70 23.73 3.21 180.00 JK Cement Ltd. 192.00 13426.00 17.16 11.19 0.79 65.00
Recommendation & Analysis - BUY Dalmia Bharat Limited has reported a standalone total income from operations for the quarter stood at Rs. 547.90 million against Rs. 459.90 million in the corresponding quarter of the previous year and Rs. 560.30 million in the previous quarter. The EBIDT for the quarter was to Rs. 227.90 million from Rs. 206.90 million in the previous quarter an increase of 10.15%. Net profit slightly increased to Rs. 188.50 million against Rs. 186.70 million in the corresponding quarter ending of previous year, an increase of 0.96%. The consolidated total income from operations was Rs. 7400 million for the period as against Rs. 6840 million for the corresponding quarter ending September 30, 2012, an increase of 8% driven by increase in sale volume by 11%. The EBITDA for the quarter was Rs. 1010 million as compared to Rs. 1870 million in Q2 FY13. The industry continues to face challenging scenario with low demand and volatile prices. The Company is mitigating this risk through focused initiatives to reduce cost and capture market share. For half yearly consolidated EBITDA was Rs. 2310 million as compared to Rs. 3560 million in H1 FY13 while EBITDA margin was 16% and 27% respectively. This contraction of EBITDA margin was mainly on account of drop in sales realization by 5%, impact of exchange rate fluctuation; increased freight cost due to rise in diesel prices and increased lead distance an account of constrained demand scenario. Variable cost per tone for Douth operations has witnessed a decline of 2% on YoY basis. The Company continues to improvise further on their efficiency parameters which have shown positive impact and it has been able to optimize the cost of production in North East and South operations. It is focusing on enhanced usage of petcoke & alternate fuel in klin and lignite in Captive Power Plants. Besides this, it also is doing necessary capex to bring down power consumption in cement grinding in North East operations. The Company s all upcoming projects are progressing as per schedule. Over FY2012-15E, we expect the company to post a CAGR of 14% and 24% in its top-line and bottom-line respectively. Hence, we recommend BUY for Dalmia Bharat Ltd with a target price of Rs. 184.00.
QUARTERLY HIGHLIGHTS (STANDALONE) Results updates- Q2 FY14, Dalmia Bharat Limited (DBL) is engaged in the businesses of cement and refractories in India, reported its financial results for the quarter ended 30 th Sep, 2013. Months Sep-13 Sep-12 % Change Net Sales 547.90 459.90 19.13 PAT 188.50 186.70 0.96 EPS 2.32 2.30 0.96 EBITDA 227.90 206.90 10.15 The company s net profit slightly increased to Rs. 188.50 million against Rs. 186.70 million in the corresponding quarter ending of previous year, an increase of 0.96%. Revenue for the quarter rose by 19.13% to Rs. 547.90 million from Rs. 459.90 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 2.32 a share during the quarter, registering 0.96% decrease over previous year period. Profit before interest, depreciation and tax is Rs. 227.90 millions as against Rs. 206.90 millions in the corresponding period of the previous year. Break up of Expenditure Expenditure (Rs. Millions) Q2 FY14 Q2 FY13 Cost of Materials Consumed 110.00 96.20 Depreciation and Amortization expense 5.40 3.20 Employees Benefit Expenses 215.10 118.90 Other Expenditure 188.30 172.50 Purchase of Stock-in-Trade 0.10 4.80
Segment Revenue Latest Updates During the period, the Company's subsidiary, Dalmia Cement (Bharat) Limited, has acquired remaining 22.50% stake in Adhunik Cement Limited, makiing it a wholly owned subsidiary. During the period, the Company's subsidiary Dalmia Cement (Bharat) Limited has purchased additional stake of 1.72% in OCL India Limited taking the total stake to 47.09%. The Company s greenfield capacity of 2.5 MnT at Belgaum, Karnataka, which is being under implemented would enhance the Company s market reach in the western region, mainly Maharashtra and northern Karnataka. The cost of setting up this greenfield project is estimated at Rs. 13400 million and is expected to be fully operational by FY15. On completion of this in-progress expansion, the combined capacity of Company (including subsidiaries and associate) would increase to 22 Mnt. The Company is also setting up a 0.9 MnT grinding unit at Lanka, Assam, which will enhance the grinding capacity to 2.1 MnT and is setting up a 1 MnT clinker unit at Umrangshu, Assam, which would take the total clinker capacity to1.3 MnT, at an estimated cost of Rs. 5000 mn. OCL is setting up 1.35 MnT split grinding unit at Medinipur in West Bengal at an approximate cost of Rs. 5200 mn, which is expected to be commissioned by FY14.
COMPANY PROFILE Dalmia Bharat Limited (DBL) is engaged in the businesses of cement and refractories. Dalmia Bharat Limited (DBL) is one of the key cement player in India and a leader in cement manufacturing since 1939. The Company is well respected for its project execution capabilities and is a multi-spectrum player with double digit market share in its primary markets. DBL is a pioneer in super specialty cements used for oil wells, railway sleepers, and airstrips. The Company has cement plants in the southern states of Tamil Nadu (Dalmiapuram and Ariyalur) and Andhra Pradesh (Kadapa), with a capacity of 9 million tonnes per annum. The Company also holds 45.4 % stake in OCL India Ltd., a major cement player in the eastern region with a capacity of 5.3 MnT. The Company has recently embarked upon acquisition led growth for expansion. As part of this strategy, two cement plants in North Eastern India - Adhunik Cement and Calcom Cement were acquired. With these acquisitions, the Group now has augmented its presence and gained greater traction in its effort to acquire a pan India footprint with total installed capacity of 17.1 MnT (along with its subsidiaries and associate), from 9 MnT over the last five years. DBL s project execution coupled with the ability to successfully execute mergers and acquisitions has spurred this growth. DBL s capacity will increase to 22 MnT over the next two years. The Company has consistently demonstrated its ability to gain market share in its existing and new markets besides enjoying premium pricing. Company, through its 74% holding in DCB Power Ventures Ltd (DCBPVL), has a captive thermal power capacity of 72 MW in the southern region. In addition, its subsidiaries and associate have captive thermal power capacity totalling to 79 MW. Current captive power capacity supports 70% of the total installed cement capacity of the Group. Product Offering Product Offering Cement (OPC/PPC/PSC) Dalmia Vajram Dalmia Super Roof Dalmia Cement Konark Specialty Cement Dalmia Railway Sleeper Cement Dalmia Airstrip Cement Dalmia oil Well Cement Dalmia SRpC
FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March31, 2012-2015E FY12A FY13A FY14E FY15E EQUITY AND LIABILITIES: Shareholders Funds: Share Capital 162.40 162.40 162.40 162.40 Reserves and Surplus 4976.90 5239.40 5790.32 6407.32 a) Net worth 5139.30 5401.80 5952.72 6569.72 Non-Current Liabilities: Long-term borrowings 0.00 2.00 0.00 0.00 Deferred Tax Liabilities [Net] 1.80 5.20 4.89 5.47 Other Long Term Liabilities 0.00 0.00 2.00 2.30 Long Term Provisions 36.00 46.30 51.86 57.04 b) Long term liabilities 37.80 53.50 58.74 64.82 Current Liabilities: Short-term borrowings 42.00 14.10 42.50 45.05 Trade Payables 297.60 339.80 366.98 389.00 Other Current Liabilities 38.10 95.40 83.00 92.96 Short Term Provisions 162.40 194.00 126.10 138.71 c) Current Liabilities 540.10 643.30 618.58 665.72 Total (a+b+c) 5717.20 6098.60 6630.04 7300.25 ASSETS: Non-Current Assets: Tangible Assets 74.20 84.70 89.78 94.27 Intangible Assets 1.40 1.30 1.40 1.49 Non Current Investments 2797.40 2582.00 2633.64 2765.32 Long Term Loans and Advances 567.10 570.70 582.11 587.94 d) Non-Current Assets 3440.10 3238.70 3306.94 3449.02 Current Assets: Current Investments 708.20 1111.20 761.78 837.96 Inventories 322.60 208.90 252.77 285.63 Trade Receivables 132.10 597.70 777.01 932.41 Cash and Bank Balances 159.20 18.40 21.34 24.55 Short Term Loans and Advances 955.00 923.70 1510.20 1770.69 e) Current Assets 2277.10 2859.90 3323.10 3851.23 Total (d+e) 5717.20 6098.60 6630.04 7300.25
Annual Profit & Loss Statement for the period of 2012 to 2015E Value(Rs.in.mn) FY12A FY13A FY14E FY15E Description 12m 12m 12m 12m Net Sales 1571.90 1906.00 2115.66 2327.23 Other Income 241.70 324.50 460.79 506.87 Total Income 1813.60 2230.50 2576.45 2834.10 Expenditure -1380.60-1696.70-1851.20-2024.69 Operating Profit 433.00 533.80 725.25 809.41 Interest -3.10-1.10-1.02-1.08 Gross profit 429.90 532.70 724.22 808.32 Depreciation -13.00-16.50-20.63-24.34 Profit Before Tax 416.90 516.20 703.60 783.99 Tax -92.90-102.90-152.68-166.99 Net Profit 324.00 413.30 550.92 617.00 Equity capital 162.40 162.40 162.40 162.40 Reserves 4977.20 5239.40 5790.32 6407.32 Face value 2.00 2.00 2.00 2.00 EPS 3.99 5.09 6.78 7.60 Quarterly Profit & Loss Statement for the period of 31 st Mar, 2013 to 31 st Dec, 2013E Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E Description 3m 3m 3m 3m Net sales 572.60 560.30 547.90 482.15 Other income 89.30 92.80 178.80 137.68 Total Income 661.90 653.10 726.70 619.83 Expenditure -490.90-488.60-498.80-427.19 Operating profit 171.00 164.50 227.90 192.64 Interest -0.30-0.30-0.10-0.11 Gross profit 170.70 164.20 227.80 192.53 Depreciation -6.60-4.90-5.40-5.83 Profit Before Tax 164.10 159.30 222.40 186.70 Tax -44.20-34.30-33.90-43.50 Net Profit 119.90 125.00 188.50 143.20 Equity capital 162.40 162.40 162.40 162.40 Face value 2.00 2.00 2.00 2.00 EPS 1.48 1.54 2.32 1.76
Ratio Analysis Particulars FY12A FY13A FY14E FY15E EPS (Rs.) 3.99 5.09 6.78 7.60 EBITDA Margin (%) 27.55% 28.01% 34.28% 34.78% PBT Margin (%) 26.52% 27.08% 33.26% 33.69% PAT Margin (%) 20.61% 21.68% 26.04% 26.51% P/E Ratio (x) 42.00 32.93 24.70 22.06 ROE (%) 6.30% 7.65% 9.25% 9.39% ROCE (%) 8.61% 10.16% 12.44% 12.60% EV/EBITDA (x) 31.16 25.49 18.79 16.84 Book Value (Rs.) 63.30 66.52 73.31 80.91 P/BV 2.65 2.52 2.29 2.07 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 167.60, the stock P/E ratio is at 24.70 x FY14E and 22.06 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.6.78 and Rs.7.60 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 24% over 2012 to 2015E respectively. On the basis of EV/EBITDA, the stock trades at 18.79 x for FY14E and 16.84 x for FY15E. Price to Book Value of the stock is expected to be at 2.29 x and 2.07 x respectively for FY14E and FY15E. With an addition of approximately 14 MnT of capacity during first half of FY14, the Indian Cement Industry has a total capacity of around 373 MnT (ending Sep 2013) and is operating at around 70% capacity utilization. The Industry expected to further add around 14 MnT of capacity in remaining period of FY14. We recommend BUY in this particular scrip with a target price of Rs.184.00 for Medium to Long term investment. INDUSTRY OVERVIEW Cement is one of the core industries which plays a vital role in the growth and development of a nation. The cement industry in India has been expanding significantly on back of increasing infrastructure activities and demand from housing sector. Keeping in line with the technological world, the Indian cement industry has transited itself into a more advanced one. At present, the Indian cement industry is positioned on the second rank globally and comprise of 183 large and 365 mini cement plants. Moreover, the Indian cement majors, including ACC Ltd, Shree Cement Ltd and Ultratech, have signed a cooperation pact to support low-carbon investments in India. The pact was signed in Geneva with member companies of the World Business Council (WBC) for Sustainable Development s Cement Sustainability Initiative and International Finance Corporation (IFC). The roadmap will pose as a possible transition path for the Indian cement industry to reduce its direct emissions by 18 per cent by 2050. This is the first roadmap to focus on one specific industrial sector in a single country, as per a WBC release.
Market Size A RNCOS report titled Indian Cement Industry Outlook 2015 estimated that the total installed capacity of cement in India will increase with a compound annual growth rate (CAGR) of around 7 per cent during 2012-13 to 2014-15. The production of cement has increased at 10 per cent CAGR over FY07-11. The market size of the industry is expected to grow from 223.4 MTPA during FY12 to 550 MTPA by FY20. The cement companies in India are receiving full attention from the private equity (PE) firms for funding their business plans. India s cement sector is with an overall capacity of 350 MTPA. The companies including UltraTech, ACC, Ambuja Cements, Jaiprakash and Shree Cement control almost half the country s cement market. In the 11th Five Year Plan (2007-12), the industry added 120 MT of new capacities and is expected to reach close to 470 MT by 2017. Investments The cement and gypsum products sector has attracted foreign direct investments (FDI) worth US$ 2,656.29 million between April 2000 to June 2013, according to the data published by the Department of Industrial Policy and Promotion (DIPP). Malaysia s Construction Industry Development Board (CIDB) has expressed interest in the construction of 300 km long Agra-Lucknow expressway project, linking the Taj city with the state capital, at an estimated cost of around Rs 11,000 crore (US$ 1.78 billion) in Uttar Pradesh The Government of Jammu and Kashmir (J&K) will set up a cement plant with 1,000 tonnes per day capacity with the aim of capturing local market share for the cement Ultratech Cement has initiated steps to set up a Rs 2,500 crore (US$ 405.38 million) Greenfield cement plant in Tamil Nadu (TN) and will add to the 36 MT cement production capacity in TN. The Company also plans to set up a 5.5 MTPA cement plant with 4.5 MT clinker production, 75 megawatt (MW) captive power plant and a waste heat recovery facility of about 15 MW Orient Cement Ltd has received environmental clearance for its three MTPA cement plant at Chittapur in Gulbarga district of Karnataka Shiva Cement plans to enhance its production capacity to one MTPA with an investment of Rs 270 crore (US$ 43.78 million) ACC Ltd, aims to enter the north-coastal Andhra Pradesh market through its product called Coastal Plus particularly suited to coastal areas as it is corrosion-proof, according to Mr Kurian Chandapillai, Director (sales) of the eastern region. The company had acquired a small cement (Encore) in the Visakhapatanm Special Economic Zone (SEZ) and spent Rs 80 crore (US$ 12.97 million) on it, making it a 30,000 tonne per month plant
Government Initiatives During the 12th Five Year Plan period (2012-17) the industry is estimated to add a capacity of 150 MT. Giving impetus to the market, the Government of India plans to roll out public-private partnership (PPP) projects worth Rs 1 trillion (US$ 16.33 billion) over the next six months. The Principal Secretary in the Prime Minister's Office (PMO) will monitor these projects. Also, the steering group appointed by Dr Manmohan Singh, Prime Minister of India, to accelerate infrastructure investments, has set deadlines for the award of projects such as Mumbai rail corridor and Navi Mumbai Airport, among others. With focus on the green initiatives, Goa State Pollution Control Board (GSPCB) signed a memorandum of understanding (MoU) with Vasavdatta Cement, a company with its plant in Karnataka. The firm would use the plastic waste collected by the state agencies and village panchayats from Goa to use the waste as fuel for its manufacturing plant. Road Ahead Indian cement industry is globally competitive as the industry witnessed healthy trends such as cost control, continuous technology upgradation and increased construction activities. With the ever increasing industrial activities, real estate, construction and infrastructure, in addition to the onset of various Special Economic Zones (SEZs) being developed across the country, there is a demand for cement. In addition, it is estimated that India needs about US$ 1 trillion from 2012-13 to 2016-17 to fund infrastructure such as ports, airports and highways to boost growth, thereby promising a good outlook for the industry. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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