Result Update Dalmia Bharat Enterprises Reuters: DALA.BO; Bloomberg: DBEL IN 22 May 218 Healthy Performance Led By Good Volume Growth Dalmia Bharat Enterprises (DBEL) reported a healthy performance for on double-digit volume growth YoY driven by higher volume. Volume grew ~14% YoY to 5.18mnmt (above our estimate of 4.96mnmt), mainly contributed by the eastern region. Realisation was up ~4% YoY/down 1% QoQ to Rs4,892/tn (marginally below our estimate of Rs4,915/tn) on account of better pricing in the eastern region. Overall revenues grew ~21% YoY to ~Rs 26.4bn. Operating costs increased ~1% YoY to Rs3,956/tn (marginally below our estimate of Rs4,/tn) because of high raw material, energy, logistics and employee costs. Effectively, EBITDA grew ~7% YoY to Rs5.9bn versus ~Rs5.5bn in (above our estimate of ~Rs4.7bn). EBITDA/tn stood flat at Rs1,137 (above our estimate of Rs94/tn), despite cost inflation which was commendable. However, interest costs fell by ~2% YoY to Rs1.5bn (Rs1.9bn in ), as DBEL repaid debt of ~Rs 7.75bn in FY18. Effectively, DBEL reported PAT of ~Rs1.8bn, flat YoY/up 58% QoQ. We have valued DBEL at a replacement cost of Rs7.bn/tn. We have retained Sell rating on DBEL with a target price of Rs2,592. High volume growth and improved realisation: Volume was up ~14% YoY at 5.18mnmt (4.6mnmt in ) on account of good demand in the eastern region. Realisation improved 4% YoY to Rs 4,892/tn on account of better pricing in the eastern region, key market of DBEL. Cost inflation: Energy costs rose ~1% YoY to Rs757/tn on account of high pet-coke prices while on a sequential basis they fell ~8% as DBEL commissioned a waste heat recovery or WHR plant of 9.2MW in January 218. Overall raw material costs were up ~14% YoY at Rs1,16/tn because of the rise in slag prices and increase in production of blended cement. Logistic costs were up only ~11 YoY to Rs 1,29/tn despite the high increase in diesel prices. Effectively, overall operating costs rose 1.3% YoY/flat QoQ to Rs3,956/tn. Retain our estimates: Demand growth in the eastern region, Andhra Pradesh and Telangana is currently healthy and is likely to remain so for the next few quarters. However, these markets are highly crowded and hence realisation is likely to be capped. The cost inflation in key raw materials is likely to continue. Given this fact, we have kept our earnings estimates for FY19/FY2 unchanged (despite performance exceeding our expectations) at ~Rs8/Rs9 per share, respectively. Outlook: We expect margins to hover ~ 2%-22% in the next two years given the limited pass-through of cost inflation. This is largely because of continued demand-supply mismatch. We have valued DBEL at a replacement cost of Rs12.3bn/mt to arrive at a fair value, given its better operating efficiency and lucrative markets. However, the stock is currently traded at Rs13.bn/mt higher than its fair value. Hence, we have retained Sell rating on DBEL with a target price of Rs2,592. We have not factored in the impact of organic or inorganic expanded capacity of DBEL. SELL Sector: Cement CMP: Rs2,737 Target Price: Rs2,592 Downside: 5% Milind Raginwar Research Analyst milind.raginwar@nirmalbang.com +91-22-6273 8172 Harshit Dhoot Research Associate harshit.dhoot@nirmalbang.com +91-22-6273 8111 Key Data Current Shares O/S (mn) 89.2 Mkt Cap (Rsbn/US$bn) 244/3.6 52 Wk H / L (Rs) 3,35/2,299 Daily Vol. (3M NSE Avg.) 169,848 Price Performance (%) 1 M 6 M 1 Yr Dalmia Bharat (5.7) (9.6) 12.8 Nifty Index (.4) 1.8 11.5 Source: Bloomberg Y/E March (Rsmn) YoY % QoQ % Net sales 26,38 21,812 2.9 2,96 26.2 Operating expenses 2,49 16,323 25.5 16,362 25.2 EBITDA 5,891 5,49 7.3 4,544 29.6 EBITDA margin (%) 22.3 25.2 (284bps) 21.7 6bps Other Income 655 663 (1.3) 57 29.1 Interest costs 1,539 1,92 (19.8) 1,419 8.5 Depreciation 1,861 1,815 2.5 1,814 2.6 PBT 3,145 2,418 3.1 1,818 73. Non-recurring items - - - - - PBT (after non-recurring items) 3,145 2,418 3.1 1,818 73. Tax 1,6 277 282.5 374 183.3 Reported PAT 1,837 1,822.8 1,165 57.6 Adjusted PAT 1,837 1,822.8 1,165 57.6 NPM (%) 7. 8.4 (139bps) 5.6 139bps Adjusted EPS (Rs) 2.7 2.5.8 13.1 57.6 Source: Company, Nirmal Bang Research
Key conference-call highlights DBEL s management has given guidance of cement industry demand growing 7%-8%. The management expects DBEL to grow 11%-12% in FY19. The management stated that the sand mining-related problem has been resolved in its key markets and hence expects FY19 to be a good year for Indian cement industry. The management expects good growth in the eastern and northeastern regions. Eastern region grew 17%-19% in FY18 and the management expects it to grow 15% in FY19. It indicated better prices in the eastern region. DBEL plans expansion in the eastern region with new cement capacity of 7.8mnmt. Capex on expansion plan will be ~Rs 37.2bn in the next 3 months. Clinker capacity will be at Rajganjpur with a capacity of 2.8mnmt and new grinding units will be set up in Odisha, West Bengal and Bihar. The management stated that in next two to three years total capex will be Rs5bn (including Kalyanpur Cement, Murli Industries and new expansion in the eastern region). Annual maintenance capex will be ~ Rs75mn - Rs1bn. DBEL commissioned a WHR plant of 9.2MW at Rajgangpur, Odisha. The management expects Rs15mn-Rs2mn savings from WHR in FY19. The management also indicated setting up more WHR and solar power plants going forward. DBEL acquired two assets in an IBC process: Kalyanpur Cement (capacity - 1.1mt) expecting to produce cement from September 219 and Murli Industries (capacity 3mt) the matter is pending before the NCLT and approval is expected in mid-june 219. Raw material costs increased on account of the rise in slag prices and increase in production of blended cement. Slag prices doubled from last year. Pet-coke prices increased 3% to ~US$18/tn. The management stated that all plants are fully equipped with multi-fuel capabilities. DBEL has started lignite usage and AFR (alternative fuel resources). AFR usage stood ~1.7% - 1.8% in FY18 and is expected to increase to ~5% in FY19. DBEL repaid debt of ~Rs7.75bn in FY18. It received an incentive of Rs82mn in and ~Rs 3.5bn in FY18. DBEL introduced composite cement in. The management believes that DBEL will be the biggest producer of composite and slag cement in India by March 219. 2 Dalmia Bharat Enterprises
Exhibit 1: Operational details (Rs) YoY % QoQ % E Deviation % Volume (mnmt) 5.18 4.6 13.8 4.2 24.8 4.96 4.4 Cement realisation (net of freight) (Rs/mt) 4,892 4,695 4.2 4,941 (1.) 4,915 (.5) Operating costs (Rs/mt) 3,956 3,587 1.3 3,943.3 4, (1.1) EBITDA (Rs/mt) 1,137 1,145 (.7) 1,57 7.6 94 21. Source: Company, Nirmal Bang Research Exhibit 2: Detailed quarterly financials (Rs mn) YoY % QoQ % E Deviation % Net sales 26,38 21,812 2.9 2,96 26.2 24,53 7.7 Expenditure Change in stock 654 669 (2.3) 282 131.7 255. 156.3 Clinker purchases 58 33 1,668.6 395 46.7 455. 27.5 Raw material costs 4,31 3,362 19.9 3,372 19.6 4,637 (13.1) Power & fuel expenses 3,922 3,129 25.3 3,43 14.3 4,34 (8.9) Freight costs 4,924 3,713 32.6 3,318 48.4 4,215.6 16.8 Employee costs 1,599 1,221 3.9 1,575 1.5 1,625 (1.6) Other expenses 4,375 3,682 18.8 3,561 22.9 3,92 12.1 Total operating expenses 2,49 16,323 25.5 16,362 25.2 19,84 3.3 EBITDA 5,891 5,49 7.3 4,544 29.6 4,663 26.3 EBITDA margin (%) 22.3 25.2 (284bps) 21.7 6bps 19. 33bps Other income 655 663 (1.3) 57 29 755 (13.3) Interest costs 1,539 1,92 (19.8) 1,419 8 1,45 6.2 Depreciation 1,861 1,815 2.5 1,814 3 1,81 2.8 PBT 3,145 2,418 3.1 1,818 73 2,158 45.8 Non-recurring items - - - - - - - PBT (after non recurring items) 3,145.2 2,418 3.1 1,818 73 2,158 45.8 Tax 1,59.5 277 282.5 374 183 561 88.9 Reported PAT 1,836.5 1,822.8 1,165 58 1,342 36.9 Adjusted PAT 1,836.5 1,822.8 1,165 58 1,342 36.9 NPM (%) 7. 8.4 (139bps) 5.6 139bps 5.5 149bps Adjusted EPS (Rs) 2.7 2.5.8 13 58 15.1 36.9 Source: Company, Nirmal Bang Research Exhibit 3: Trend in operating costs/mt Operating costs/mt(rs) 4QFY16 YoY % QoQ % Consumption of raw materials 833 896 793 72 893 79 931 976 1,16 13.8 4.2 Power and fuel expenses 526 537 672 689 688 89 836 826 757 1.1 (8.4) Freight costs 922 844 86 91 929 936 884 93 1,29 1.7 13.9 Total costs per mt 3,553 3,375 3,777 3,73 3,587 3,765 3,842 3,943 3,956 1.3.3 Source: Company, Nirmal Bang Research 3 Dalmia Bharat Enterprises
Exhibit 4: Change in our estimates Old estimates New estimates Change (%) (Rsmn) FY19E FY2E FY19E FY2E FY19E FY2E Net sales 98,54 15,762 98,54 15,762 - - Operating profit 24,596 26,53 24,596 26,53 - - Net profit 7,75 8,31 7,75 8,31 - - EPS (Rs) 79.67 9.43 79.67 9.43 - - Target price (Rs) 2,592 2,592 Rating Sell Sell Source: Company, Nirmal Bang Research 4 Dalmia Bharat Enterprises
Exhibit 5: Strong volume growth in 5.2 5. 4.6 5 3.8 4. 4.2 45 4. 3.4 3.6 3.6 4 35 3. 3 25 2. 2 15 1. 1 5. (5) (1.) (1) (15) (2.) (2) Exhibit 6: Realisation improves because of contribution from eastern region 5,2 15 5,1 5, 1 4,9 4,8 5 4,7 4,6 4,5 (5) 4,4 4,3 (1) 4,2 (15) Volumes (mn mt) Growth (% YoY, RHS) Realisations (Rs/mt) Growth (% YoY, RHS) Source: Company, Nirmal Bang Research Exhibit 7: Higher realisation keeps EBITDA/tn flat, despite cost inflation 1,5 1,333 1,285 1,3 1,166 1,112 1,145 1,13 1,137 1,57 1,1 9 7 5 3 Exhibit 8: Cost inflation fueled by higher fuel and raw material expenses 4, 15 3,9 3,8 1 3,7 5 3,6 3,5 3,4 (5) 3,3 (1) 3,2 3,1 (15) 3, (2) EBITDA/mt Operating costs/mt (Rs) Growth (% YoY, RHS) Source: Company, Nirmal Bang Research Exhibit 9: Freight costs inch up because of fuel inflation 1,2 15 1, 1 8 5 6 4 (5) 2 (1) - (15) Source: Company, Nirmal Bang Research Exhibit 1: Power & fuel costs increase YoY on account of high pet-coke prices 9 8 7 6 5 4 3 2 1-6 5 4 3 2 1 (1) (2) (3) (4) Freight costs/mt (Rs) Growth (% YoY, RHS) Power & Fuel costs/mt (Rs) Growth (% YoY, RHS) Source: Company, Nirmal Bang Research Source: Company, Nirmal Bang Research 5 Dalmia Bharat Enterprises
Aug-14 Jan-15 May-15 Oct-15 Feb-16 Jul-16 Nov-16 Apr-17 Aug-17 Dec-17 May-18 Aug-14 Jan-15 May-15 Oct-15 Feb-16 Jul-16 Nov-16 Apr-17 Aug-17 Dec-17 May-18 Exhibit 11: Valuation charts EV/EBITDA (Rs) 3,2 2,8 2,4 2, 1,6 1,2 8 4 EV/tn (Rs) 4,2 3,15 2,1 1,5 Price 1 11 12 13 Source: Company, Nirmal Bang Research Price $15 $175 $2 $225 $25 Source: Company, Nirmal Bang Research 6 Dalmia Bharat Enterprises
Financials Exhibit 12: Income statement Year Y/E March (Rsmn) FY16 FY17 FY18P FY19E FY2E Net sales 64,38 74,44 86,88 98,54 15,762 growth (%) 83.2 15. 16.3 13. 7.9 Operating expenses (48,593) (55,25) (65,673) (73,458) (79,231) EBITDA 15,786 19,19 2,415 24,596 26,53 growth (%) 162. 2.5 7.3 19.1 7.9 Depreciation &amortisation (4,528) (6,27) (7,37) (6,173) (6,71) EBIT 11,259 12,992 13,378 18,424 2,459 Other income 1,642 2,477 2,789 2,389 2,546 Interest paid (7,256) (8,9) (7,49) (7,459) (7,523) Extraordinary/Exceptional items - - - - - PBT 5,644 6,569 9,118 13,354 15,482 Tax (2,991) (2,762) (2,677) (4,841) (5,922) Effective tax rate (%) (53.) (42.) (29.4) (36.3) (38.3) Net profit 2,653 3,87 6,442 8,513 9,56 Minority interest (745) (87) (1,77) (1,439) (1,53) Reported net profit 1,98 2,937 5,365 7,75 8,31 Non-recurring items - - - - - Adjusted net profit 1,98 2,937 5,365 7,75 8,31 Growth (%) 1,98.8 53.9 82.7 28.7 13.5 Source: Company, Nirmal Bang Research Exhibit 14: Balance sheet Y/E March (Rsmn) FY16 FY17 FY18P FY19E FY2E Cash & bank balances 2,336 1,75 3,538 1,757 2,135 Other current assets 49,713 53,922 54,936 54,851 58,419 Investments 1,119 1,2 8,431 1,524 1,524 Net fixed assets 98,727 94,949 85,177 94,27 95,926 Goodwill & intangible assets 27,81 28,137 28,264 28,391 28,517 Other non-current assets - - - - - Total assets 179,696 179,778 18,345 18,55 186,522 Current liabilities 26,168 31,712 33,6 35,236 37,261 Borrowings 85,63 76,525 63,251 72,77 73,394 Other non-current liabilities 13,55 12,72 1,856 15,839 17,93 Total liabilities 124,852 12,38 17,76 123,845 127,748 Share capital 178 178 178 178 178 Reserves & surplus 49,47 53,163 47,122 49,77 51,5 Shareholders' funds 49,584 53,341 47,3 49,947 51,678 Minority interest 5,259 6,129 25,339 6,758 7,95 Total equity & liabilities 179,696 179,778 18,345 18,55 186,522 Source: Company, Nirmal Bang Research Exhibit 13: Cash flow Y/E March (Rsmn) FY16 FY17 FY18P FY19E FY2E Pre-tax profit 5,644 6,569 9,118 13,354 15,482 Depreciation (19,635) 6,21 (5,237) 5,396 5,294 Chg in working capital 6,548 2,21 1,74 (2,512) (653) Total tax paid 9,749 (3,744) (3,892) (3,477) (4,558) Other operating activities - - - - - Operating CF 2,36 11,47 1,63 12,761 15,565 Capital expenditure (9,874) (2,579) 14,883 (5,115) (7,32) Chg. in investments (9,616) (768) (7,611) (42) (1,) Other investing activities - - (6,797) 951 - Investing CF (19,489) (3,347) 475 (4,26) (8,32) FCF (17,183) 7,7 1,538 8,555 7,245 Equity raised/(repaid) 6,191 37 1 - - Debt raised/(repaid) 3,63 (9,16) (13,274) (8) 625 Dividend (incl. tax) (269) (19) - (19) (19) Other financing activities 4,714 973 13,523 (6,844) (7,32) Financing CF 14,238 (8,286) 25 (7,834) (6,867) Net chg. in cash & bank bal. (2,945) (586) 1,788 722 378 Closing cash & bank bal. 2,336 1,75 3,538 1,757 2,135 Source: Company, Nirmal Bang Research Exhibit 15: Key ratios Y/E March (Rsmn) FY16 FY17 FY18P FY19E FY2E Profitability and return ratios (%) 24.5 25.7 23.7 25.1 25.1 EBITDAM 2. 2.9 18.8 21.2 21.8 EBITM 3. 4. 6.2 7.2 7.6 NPM 4. 5.1 8.1 12.8 13.9 RoE 9.3 1.3 11. 14.5 15.6 RoCE 6.9 9.3 13. 14.9 15.5 RoIC Per share data (Rs) 88.8 88.8 89.2 88.8 88.8 O/s shares 21.5 33.1 6.2 79.7 9.4 EPS 21.5 33.1 6.2 79.7 9.4 FDEPS 72.5 1.9 139.1 149.2 158.8 CEPS 326.9 379. 523.5 344.4 366. BV 2.6 1.8. 1.8 1.8 DPS Valuation ratios (x) 132.5 86.1 47.3 35.7 31.5 PE 8.7 7.5 5.4 8.3 7.8 P/BV 19.7 15.9 14.1 12.1 11.2 EV/EBITDA 4.8 4.1 3.3 3. 2.8 EV/Sales Other key ratios 1.1.8.5.8.8 D/E (x) 28.9 29.2 22.1 29. 29. DSO (days) Du Pont analysis - RoE NPM (%) 3. 4. 6.2 7.2 7.6 Asset turnover (x).4.4.5.6.6 Leverage factor (x) 3.4 3.1 2.7 3.2 3.2 RoE (%) 4. 5.1 8.1 12.8 13.9 Source: Company, Nirmal Bang Research 7 Dalmia Bharat Enterprises
Apr-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Aug-17 Sep-17 Oct-17 Nov-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Mar-18 Apr-18 May-18 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 Rating track graph 34 32 3 28 26 24 22 2 18 Not Covered Covered 8 Dalmia Bharat Enterprises
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