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MOSL : DALMIA BHARAT: Above estimates; energy cost to fall from 3QFY23

 

6. DALMIA BHARAT: Above estimates; energy cost to fall from 3QFY23

(DALBHARA IN, Mkt Cap USD3.8b, CMP INR1618, TP INR1815, 12% Upside, BuY

Earnings beat led by higher volumes, better realization, and lower OPEX

• DALBHARA's 1QFY23 performance was above our estimates driven by an all-round beat. EBITDA/OPM stood at INR6b/18% (est. INR5b/16%). EBITDA/t at INR945 (est. INR848).
• Variable cost increase for the company is the lowest among its peers due to a higher clinker-to-cement conversion ratio. We raise our FY23/FY24 EBITDA estimate by 10%/2%, which is driving the EPS increase of 26%/3%.
• We like the stock owing to its growth plans, locational advantage in East India, and cost reduction measures. We maintain our Buy rating with a TP of INR1,815 (from INR1,675 earlier), based on 12.5x FY24E EV/EBITDA.

Clocks higher volume growth in South India, EBITDA/t at INR945

• Consolidated revenue/EBITDA/PAT stood at INR33b/INR6b/INR2b (+27%/-18%/-30% YoY and 3%/14%/45% above our estimates). Sales volume rose 27% YoY (2% higher than our estimate). Realization improved by 1% YoY and 4% QoQ to INR5,326/t, with price hikes in East India and the northeast.
• OPEX/t rose 14% YoY due to: a) a 37% increase in variable costs, led by higher fuel consumption cost, and b) a 4% increase in freight cost, led by higher diesel prices and lead distance. However, employee costs/t and other expenses/t declined by 15% and 7% YoY, respectively, on higher volumes.
• EBITDA/t stood at INR945 v/s INR1,458/INR1,035 in 1Q/4QFY22. Interest expense declined by 21% YoY. Profit (after MI) was down 30% YoY.

 

Highlights from the management commentary

• The government's push toward capital expenditure and its constant focus on infrastructure development will continue to boost demand for cement. The exit cement price in Jun'22 was 3% lower than its 1QFY23 average. There has been some price decline in East India in Jul'22 on account of the monsoons.
• Fuel consumption cost is likely to remain at USD220/t till 2QFY23 as the company is carrying coal inventory. The same will see a downward trend from 3QFY23 onwards (spot petcoke price at USD180-190/t).
• DALBHARA is on course to achieve a clinker/cement capacity of 23.7mtpa/ 49mtpa by FY24. It is evaluating the best possible opportunities to meet its future organic growth plans. Its long-term growth plan of achieving a capacity of 110-130mtpa by CY31 remains intact.

 

Valuations attractive, reiterate our Buy rating

• The stock trades at 10.8x FY24E EV/EBITDA, with an EV/t of USD78. It has traded at an average EV/EBITDA of 10.6x/9.4x over the last five/10 years. With an expected improvement in earnings (8% CAGR over FY22-24) and the management's focus on continuous capacity expansions, without leveraging its Balance Sheet, we expect the stock to trade at higher multiples.
• We value DALBHARA at 12.5x FY24E EV/EBITDA to arrive at our TP of INR1,815 (from INR1,675 earlier), implying a potential upside of 12% from current levels. We maintain our Buy rating on the stock.