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MOSL: DALMIA BHARAT (Buy)-Robust pricing in focus markets drives margins

DALMIA BHARAT: Robust pricing in focus markets drives margins

(DALBHARA IN, Mkt Cap USD2.7b, CMP INR987, TP INR1270, 29% Upside, Buy)

 

• Realization improvement drives margins: Cement volumes were up by just 1% YoY to 4.6mt, while blended realization increased 6% YoY (+9% QoQ) to INR5,576/t, led by healthy pricing in focus markets. Revenue grew 7% YoY to INR25.4b (our estimate: INR22.5b). EBITDA stood at INR6.7b (our estimate: INR5.3b), with the margin at 26.3%. The group adopted Ind-AS 116 effective 1st Apr'19, due to which EBITDA came in higher by INR120m for the quarter. EBITDA/t stood at INR1,464, as against INR1,160 in the year-ago period. PAT after minority interest was up 2.8x YoY at INR1.5b.
• Concall highlights: (a) DBEL lowered the FY20 industry growth guidance to 6% (v/s 8-10% earlier). (b) NCLT passed an order in the matter of Murli Industries on 22nd Jul'19. The transaction is likely to be completed in 3-4 months, provided two conditions are fulfilled - (i) revival of mines that were earlier cancelled by the government and (ii) revival of GST incentive by the Maharashtra government. (c) Capex spend was INR3b for 1QFY20. Company expects to spend another INR8b over the remainder of the year. (d) It recognized incentives amounting ~INR360m in the quarter.

Valuation view: We have not built in Murli's acquisition in our estimate as we expect to get more clarity on the transaction only by Oct'19. Once the transaction is complete, there will be an initial payment of ~INR4b for the acquisition of the asset and another INR4b for starting the operations. While we have largely maintained the EBITDA estimate for FY21, our EPS assumption is higher by 5% due to lower interest cost. DBEL trades at 7.7x/6.6x FY20/21 EV/EBITDA. We value the stock at 9x FY21E EV/EBITDA to arrive at a target price of INR1,270 (implied EV/t of USD 105). Maintain Buy