Result Update Dalmia Bharat Enterprises 1 November 218 Reuters: DALA.BO; Bloomberg: DBEL IN Performance In Line; Stock Under Review Post Odisha Cement Amalgamation Dalmia Bharat Enterprises (DBEL) reported performance in line with expectation backed by YoY double-digit volume growth. Volume grew ~13.5% YoY to 4.13mnmt (in line with our estimate of 4.8mnmt), contributed by its key markets. Realisation gains (unadjusted to incentive income), grew ~6% YoY to Rs5,225/tn which was offset by higher- than-estimated cost over-run of ~12% at Rs4,283/tn. Overall revenues grew ~17% YoY to ~Rs21.6bn. Higher operating costs was because of higher energy costs (combined with raw material costs to neutralise the inventory impact) that increased ~16% to Rs2,44/tn. Other expenditure jumped 34% YoY to Rs3.68bn and effectively, EBITDA declined ~11% YoY to Rs3.89bn versus ~Rs4.4bn in (marginally below our estimate of ~Rs4.5bn). EBITDA/tn fell 19% to Rs915/tn compared with Rs1,13/tn as cost inflation offset the benefit of realisation gains and hurt the performance. Following the amalgamation of DBEL and Odisha Cement, higher interest costs and depreciation are not comparable with. Effectively, DBEL incurred a loss of 65mn before tax. Positive tax impact helped the company to post a marginal increase in PAT at Rs2mn. We have put the DBEL stock under review from our Sell rating earlier following amalgamation of the two companies. We will revisit our earnings estimates after taking into account the impact of the amalgamation and come out with our revised rating (if it is changed) and a fresh target price on DBEL. Higher volume growth: Volume was up ~14% YoY at 4.13mnmt (~3.64mnmt in ) on account of good demand in the eastern region and revival in the southern region. Realisation unadjusted to the incentives (Rs4mn in ) increased by ~6% YoY to Rs5,225/tn. Cost inflation offsets realisation gains: Energy costs (combined with raw material costs) rose ~16% YoY (energy costs up 24% YoY) on account of high pet-coke prices. The overall pet-coke usage was 57% in. Energy cost inflation continued, despite the shift in fuel mix to domestic fuel/lignite. Other expenditure shot up sharply by ~35% to Rs3.68bn YoY. Logistics costs were up ~7 YoY at Rs949/tn because of higher diesel prices. Effectively, overall operating costs rose 11.5% YoY/~5. QoQ to Rs4,283/tn. Ratings and estimates under review: We have placed the DBEL stock under review from our Sell rating earlier following the amalgamation of Odisha Cement with DBEL. We will revisit our earnings estimates after taking into account the impact of the amalgamation and come out with a revised rating (if it is changed) and a fresh target price on DBEL shortly. UNDER REVIEW Sector: Cement CMP: Rs2,9 Milind Raginwar Research Analyst milind.raginwar@nirmalbang.com +91-22-6273 8172. Key Data Current Shares O/S (mn) 89.2 Mkt Cap (Rsbn/US$bn) 187.8/2.5 52 Wk H / L (Rs) 3,35/1,923 Daily Vol. (3M NSE Avg.) 9,816 Price Performance (%) 1 M 6 M 1 Yr Dalmia Bharat (9.2) (3.9) (29.6) Nifty Index (5.1) (3.4).4 Source: Bloomberg Y/E March (Rsmn) YoY % QoQ % Net sales 21,58 18,337 17.7 23,676 (8.9) Operating expenses 17,69. 13,985.9 26.5 18,436.3 (4.) EBITDA 3,89 4,351 (.6) 5,24 (25.8) EBITDA margin (%) 18 24 (57bps) 22 (4bps) Other income 74 922 (19.7) 432 71.1 Interest costs* 2,25 1,911 17.7 1,62 38.9 Depreciation* 3,3 1,547 95.9 1,798 68.6 PBT* (65) 1,814 (135.8) 2,254 (128.8) Non-recurring items.. PBT (after non-recurring items)* (65) 1,814 (135.8) 2,254 (128.8) Tax* (67) 584 (214.7) 773 (186.6) Reported PAT* 2 1,23 (98.4) 1,481 (98.6) Adjusted PAT* 2 1,37 (98.1) 1,243 (98.4) NPM (%).1 5.7 (556bps) 5.2 (516bps) Adjusted EPS* (Rs).2 11.7 (98.1) 14. (98.4) Source: Company, Nirmal Bang Research * Not comparable with / due to amalgamation impact
Exhibit 1: Operational details (Rs) YoY % QoQ % E Deviation % Volume (mnmt) 4.13 3.6 13.5 4.5 (8.4) 4.8 1.3 Cement realisation (net of freight) (Rs/mt) 5,225 4,945 5.7 4,881 7.1 4,875 7.2 Operating costs (Rs/mt) 4,283 3,842 11.5 4,88 4.8 4,129 3.7 EBITDA (Rs/mt) 915 1,13 (19.1) 1,135 (19.4) 994 (7.9) Source: Company, Nirmal Bang Research Exhibit 2: Detailed quarterly financials (Rsmn) YoY % QoQ % E Deviation % Net sales 21,58 18,337 17.7 23,676 (8.9) 2,885 3.3 Expenditure Change in stock (68) (119) 47.5 (218) 211.5 (359) 89.4 Clinker purchases 32 393 (18.6) 177 8.5 81 295.1 Raw material costs 4,5 3,117 44.7 4,455 1.2 4,219 6.9 Power & fuel expenses 4,29 3,44 4.9 3,95 8.6 3,649 17.6 Freight costs 3,92 3,217 21.9 4,651 (15.7) 4,44 (3.1) Employee costs 1,65 1,66 2.8 1,682 (1.9) 1,75 (5.7) Other expenses 3,68 2,729 34.8 3,74 (1.6) 3,45 6.7 Total operating expenses 17,69 13,986 26.5 18,436 (4.) 16,834 5.1 EBITDA 3,89 4,351 (.6) 5,24 (25.8) 4,51 (4.) EBITDA margin (%) 18. 23.7 (57bps) 22.1 (4bps) 19.4 (137bps) Other income 74 922 (19.7) 432 71 855 (13.5) Interest costs* 2,25 1,911 17.7 1,62 39 1,6 39.8 Depreciation* 3,3 1,547 95.9 1,798 69 1,788 69.5 PBT* (65) 1,814 (135.8) 2,254 (129) 1,58 (143.1) Non-recurring items....... PBT (after non-recurring items)* (65) 1,814.4 (135.8) 2,254.3 (129) 1,58. (143.1) Tax* (67) 584. (214.7) 773.4 (187) 354.4 (289.1) Reported PAT* 2. 1,23.4 (98.4) 1,48.9 (99) 1,153.6 (98.3) Adjusted PAT* 2. 1,37.3 (98.1) 1,242.5 (98) 1,13.6 (98.) NPM (%)*.1 5.7 (556bps) 5.2 (516bps) 4.9 (476bps) Adjusted EPS (Rs)*.2 11.7 (98.1) 14. (98) 11.4 (98.) Research * Not comparable with / because of amalgamation impact Source: Company, Nirmal Bang Exhibit 3: Trend in operating costs/mt Operating costs/mt(rs) 2QFY17 YoY % QoQ % Consumption of raw materials 793 72 893 79 931 976 1,16 979 1,5 7.9 2.7 Power and fuel expenses 672 689 688 89 836 826 757 876 1,39 24.2 18.6 Freight costs 86 91 929 936 884 93 1,29 1,31 949 7.4 (8.) Total costs per mt 3,777 3,73 3,587 3,765 3,842 3,943 3,956 4,88 4,283 11.5 4.8 Source: Company, Nirmal Bang Research 2 Dalmia Bharat Enterprises
2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 Exhibit 4: Volume growth continues backed by strong demand in key markets (Rsmn) 5.2 (%) 5. 4.6 4.51 3.9 4. 4.2 4.13 9 4. 3.8 3.4 3.6 3.6 8 2.9 3. 7 3. 6 5 2. 4 3 1. 2. () (1.) (2) Exhibit 5: Realisation (unadjusted to incentive income) gains YoY 5,4 15 5,2 5, 4,8 4,6 4,4 4,2 4, 5 (5) () (15) Volumes (mn mt) Realisations (Rs/mt) Source: Company, Nirmal Bang Research Exhibit 6: EBITDA/tn falls as high cost offsets realisation gains Exhibit 7: Overall cost escalation continues impacting EBITDAM (Rsmn) 1,5 1,3 1, 9 7 5 3 1,112 1,145 1,333 1,13 1,57 1,137 1,135 915 4,4 14 12 4,2 4, 8 6 3,8 4 2 3,6 3,4 (2) (4) 3,2 (6) EBITDA/mt Operating costs/mt (Rs) Source: Company, Nirmal Bang Research Exhibit 8: Freight cost inflation limited 1,5 14 12 1, 95 8 6 9 4 85 2 8 (2) Source: Company, Nirmal Bang Research Exhibit 9: Higher pet-coke prices impact energy costs 1,2 6 1, 5 4 8 3 6 2 4 2 - () Freight costs/mt (Rs) Power & Fuel costs/mt (Rs) Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research 3 Dalmia Bharat Enterprises
Apr-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Oct-18 Financials snapshot pre-amalgamation (Financials Under Review post-amalgamation) Y/E Mar (Rsmn) FY16 FY17 FY18P FY19E FY2E Net sales 64,38 74,44 86,792 98,54 5,762 EBITDA margin (%) 24.5 25.7 23.8 25.1 25.1 Adjusted net profit 1,98 2,937 5,498 7,75 8,31 vs consensus (%) - - - (23.1) (33.3) EPS (Rs) 21.5 33.1 61.9 79.7 9.4 growth (%) 1,95.3 53.9 87.2 28.7 13.5 P/E (x) 122.1 79.3 42.4 32.9 29. P/B (x) 8. 6.9 8.2 7.6 7.2 EV/EBITDA (x) 18.4 14.8 13.5 11.3.5 D/E(x) 1.1.8.8.8.8 RoE (%) 4. 5.1 9.7 12.8 13.9 RoCE (%) 9.3.3 11.8 14.5 15.6 Source: Company, Nirmal Bang Research Rating track Date Rating Market price (Rs) Target price (Rs) 26 March 218 Sell 2, 847 2,589 22 May 218 Sell 2,737 2,592 6 June 218 Sell 2,624 2,43 14 August 218 Sell 2,55 2,395 1 November 218 UNDER REVIEW 2,9 - Rating track graph 34 32 3 28 26 24 22 2 18 Not Covered Covered 4 Dalmia Bharat Enterprises
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