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MOSL: DALMIA BHARAT (Buy)-Best is yet to come for the Indian cement industry

DALMIA BHARAT: Best is yet to come for the Indian cement industry; Pace of demand growth to outpace supply

(DBEL IN, Mkt Cap USD3.3b, CMP INR2690, TP INR3141, 17% Upside, Buy)

 

We hosted Mr. Puneet Dalmia, Managing Director of Dalmia Bharat (DBEL), as part of 'CEO Track' at our annual conference. Key takeaways:

• The Indian cement industry witnessed a supply CAGR of 11% over FY07-17; however, the pace of capacity addition slowed down from 46mtpa in FY08-10 to 21mtpa in FY14-17. Demand during the same period increased at only 6% CAGR leading to utilization levels reducing from 90% in FY07 to 62% in FY18.
• Capacity is expected to grow at 4% CAGR over FY18-23, driven by difficulty in limestone access and credit availability. Rise in cost of land and quick insolvency processes should further restrict aggressive capacity addition.
• As a result, the industry should witness consolidation and the top-5 players who constitute 47% of the capacity share should account for 55% in FY21.
• Demand is expected to grow at a CAGR of 8% over FY18-23 driven by housing projects like Pradhan Mantri Awas Yojana (PMAY) and various road projects.
• Thus DBEL expects utilization levels to increase from 62% in FY18 to 79% in FY23.
• Dalmia expects pricing to also pick up as with rising replacement cost, it would become imperative for incremental capacities to generate higher EBITDA/ton in order to meet the cost of capital.