initiating coverage report current market price: … bharat.pdfinitiating coverage report current...

Initiating Coverage Report

Current Market Price: INR241

Target Price: INR304

Analyst Name: Saroj Singh

[email protected]

- 2 -

Microsec Research 12th May 2014

We rate Dalmia Bharat Limited a BUY. Dalmia Bharat ltd has operations in cement and

power businesses. Dalmia Bharat is the first cement manufacturing company in the country

to set up an R&D lab for concrete. Founded in 1939, customer delight has always been the

bottom line of Dalmia Culture. Dalmia Bharat achieves customer delight by constantly

improving and manufacturing the best quality cement products. The company has cement

manufacturing plants in southern states of Tamil Nadu (Dalmiapuram & Ariyalur) and

Andhra Pradesh (Kadapa), with a capacity of 9 million tonnes per annum.

Investment Highlights

Acquiring 74% holding in Bokaro Jaypee Cement Ltd to scale up capacity and add in topline

once demand improves: Dalmia Cement (Bharat) recently acquired 74% holding in Bokaro

Jaypee Cement Limited. The total enterprise value is 1,150 crore. BoJCL has a 2.1 million

tonnes per annum (MTPA) cement unit located at Bokaro, Jharkhand. It has a 30-year long

term clinker supply arrangement with JAL and 30-year slag supply arrangement with SAIL.

Post-acquisition, the total installed capacity of the company is expected to reach 20MTPA.

The proposed acquisition would be funded through a mix of debt and internal accruals.

With EV remaining at $90/ton, the deal seems a good deal for the company. Also, Dalmia

Cement Bharat is expected to commission its Greenfield cement plant in Yadwad village,

Gokak taluk (Karnataka), in Q2FY15E. The 1,344-crore plant is increasing over 380 acres

with a total capacity of 2.5 million tonnes a year and will cater to the Karnataka region. The

plant in Karnataka is the seventh cement manufacturing plant in the country. We believe

that this additional capacity is likely to add in topline once demand improves.

Improving ROE: In FY2013, the Company’s ROE arrived at 6.4% from 6.3% in FY12 and is

expected to come at 8.2% in FY2016E. The Company has registered a strong financial

growth in FY13. Its Net sales increased by 19% to INR2791 crore and PAT improved by

37% to INR197 crore. Its PAT margin also improved from 6.1% to 7.1%. Dalmia cement’s

financial ratios are strong and are very much in line with top cement players like Ultratech

Cement, ACC Ltd, Ambuja Cement, Shree Cement, JK Lakshmi Cement, JK Cement, Ramco

Cements ltd and India Cements Limited.

Dalmia Bharat Ltd

BUY Sector – Cement

Saroj Singh

Executive Research

Email [email protected]

Promoter

and

Promoter

Group

62.80%

FII

8.51%

DII

3.28%

Others

25.41%

Shareholding

BSE Code 533309

NSE Code DALMIABHA

Bloomberg Ticker DBEL IN

Reuters Ticker DALA.BO

Face Value (INR) 2.00

Equity Share Capital (In INR Cr.) 16.24

Beta vs Sensex 0.85

STOCK SCAN

Current Market Price (INR) 241

Target Price 304

Upside Potential 26%

52 Week High/Low (INR) 286/95

Market Capitalization (In INR Cr.) 1,960

Market Data

81.54

91.54

101.54

111.54

121.54

131.54

141.54

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CLOSE(Dalmia Bharat Ltd) CLOSE(SENSEX)

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IndIndustry Snapshot

Indian Cement Industry: India is the second largest cement market after China, with an

installed capacity of 360 mtpa. In FY2013, industry has added 36 MT. The industry is

operating at around 70% utilisation. In FY2013, cement in India posted a modest growth of

~5%, because of overall slowdown in the economy, shortage of essential construction items

– sand, bricks and water and high interest rates. Over the last three years, the Cement

industry has added nearly 100 MT capacity which have led to supply outstripping demand.

As a result, the industry drives at very low capacity utilisation. This led to slow down in the

sector with cement prices coming under pressure. The situation was compounded by rising

cost of production which impacted profitability. The regions where demand outperform

supply, witnessed price increase. A macro look at the industry reveals that considerable

cement capacity addition is underway over the next two years and will continue to offer

excess market supply. Indian Cement Industry is expected to do well in FY15E because we

believe that the construction activities may pace up under new and stable government.

Installed Capacity

The capacity expansion enabled the company to increase installed capacity (including

subsidiaries and associate) by ~9.2% to 17.1 MT in FY2013 as compared to 15.7 MnT in the

FY2012. The company’s Installed Capacity has grown at a CAGR of 16.8% over FY2009-13.

Acquisition of Jaypee Cement plant capacity of 2.1 million tonnes per annum (MTPA) is

beneficial for the company for capacity addition. The company’s Installed Capacity is likely

to grow at a CAGR of 13.5% over FY2013-16E.

Source: Company data, Microsec Research

9.2

14.4 14.4 15.7 17.120

22.525

2

7

12

17

22

27

FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Installed Capacity (MTPA)

- 4 -


Total installed cement capacity of the Group.


Cement Production and Sales

Cement sales of the company increased by 11.3% in FY13 over the last year FY2012.

Cement production of the company also increased by 13.4% in FY2013 over the previous

year FY2012.The company cement sales has grown at a CAGR of ~15.3% over FY2009-13,

and production has grown at a CAGR of ~15.9% over the same period. In FY2015e cement

sales of the company expected to increase because of upcoming election and government

spending on infrastructure project. The company capacity utilization was ~68% in year end

FY2013. Dalmia Cement Ltd is looking for a production of around 10 million tonne in

FY2014. The company cement sales is likely to grow at a CAGR of ~12.3% over FY2013-

16E, and production has grown at a CAGR of ~21.7% over the same period.


Companies Installed Capacity (MTPA)

Dalmia Cement (Bharat) Ltd. 9.0

Calcom Cement India Ltd. 1.3

Adhunik Cement Ltd. 1.5

OCL India Ltd. 5.3

Total Capacity 17.1

3.38

4.07

4.67

5.38

6.10

10.00

10.50

11.00

3.39

4.08

4.64 5.39

6.00

6.50 7.50 8.50

0.00

2.00

4.00

6.00

8.00

10.00

12.00

FY2009 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E FY2016E

Cement production (MnT) Cement sales (MnT)

- 5 -


Segment revenues


Product Offering


Dalmia Vajram: - Dalmia Vajram cement gives the 100% confidence to build a 100% home.

Dalmia Vajram contains the element property of sulphates, chlorides, etc. as standard flyash

to protect the buildings and also helps in preventing corrosion in rods which are used in

various constructions. Dalmia Vajram is used in construction of roof concrete, foundation,

flooring, wall plastering, ceiling plastering and brick works.

Dalmia Super Roof: - Dalmia Super Roof is specially designed to offer additional safety and

strength, compared to ordinary cements. Dalmia Super Roof cement gives a most favorable

particle size distribution, which in turn, enable denser concrete. The solid concrete guards

against cracks and water leaks, ensuring that the roof lasts for generation.

Dalmia Railway Sleeper Cement: -according to company Dalmia Railway Sleeper Cement is

the best cement for railway sleepers. Dalmia Cement is the initiate to increase this cement

in India based on special condition and supplies develop by the Railways. It has been used

broadly to replace wooden railway sleepers for hi-speed trains. The Southern Railway is at

present using this Cement for its Chennai-Trichy Broad-Gauge conversion project.

Product Offering Cement Specialty Cement

Dalmia Vajram Dalmia Railway Sleeper Cement

Dalmia Super Roof Dalmia Oil Well Cement

Dalmia Cement Dalmia SRPC

Konark Dalmia Airstrip Cement

96.0%

92.9%

95.1%

91.4% 91.4% 91.4%

3.6%

2.8%

2.5%

2.6% 2.6% 2.6%

0.5%

3.0%0.9%

4.6% 4.6% 4.6%

1.4% 1.5% 1.4% 1.4% 1.4%

89.0%

91.0%

93.0%

95.0%

97.0%

99.0%

101.0%

FY2011 FY2012 FY2013 FY2014E FY2015E FY2016E

Cement Refractory Management Services Others

- 6 -


Dalmia Oil Well Cement: - Dalmia Oil Well Cement is the first cement in the nation to get

the impressive American Petroleum Institute (API) certification. Dalmia Cement is the

largest supplier of Oil Well Cement in the Country. Dalmia Oil Well Cement, one of the

mainly reputed and oldest cement suppliers in the nation. Oil Well Cement is used for

cementing the walls of 'on-shore' and 'off-shore' oil wells of reputed companies such as

ONGC and Oil India Ltd.

Dalmia SRPC: - The Sulphate Resisting Cement of Dalmia is a unique product specially

designed to stand the challenges of aggressive environments leading to 100 years of life to

the solid construction.

Dalmia Airstrip Cement:-:-Dalmia Airstrip Cement, is used widely in cementing runway

due to its high impact load behavior capacity. Dalmia Airstrip Cement so special and unique

that it was transported all the way from Dalmiapuram for cementing the defense airstrips by

the Indian government in Panjab.

Market Share in Key Markets ( %)

Dalmia Cement has increased dealer network, retail outlets, stockists and distributors in

order to ensure on-time product availability. The company focus on brand strategy has

enabled it to gain market share in most of the markets. With positive marketing strategy,

the Company launched the Dalmia brand in the North East. The launch saw participation of

over 600 dealers.


14 13

7

22

17

0

5

10

15

20

25

Tamil Nadu Kerala West Bengal Orissa Orissa North East

Market Share (%)

- 7 -


Dalmia Bharat Ltd.

(DBL)

Dalmia Cement (Bharat) Ltd.

(DCBL)(85%)

Calcom Cement India Ltd.(76%)

Adhunik Cement

Ltd.(100%)

OCL India Ltd.(45%)

Dalmia Power Ltd.(100%)

Corporate Structure


Geographic Mix


47%

21%

13%

9%

7%3%

Geographic Mix

Tamil Nadu

Kerala

Karnataka

Andhra Pradesh

North East

Others

- 8 -


Peer Group Comparison

Source: Ace Equity, Microsec Research

Valuation

We followed comparable valuation, Enterprise Value-to-EBIDTA (EV/EBIDTA)

methodology, to value Dalmia Bharat ltd. The three year average peer group EV / EBIDTA

stood at 8.07x at the end of FY2013. we took average of UltraTech Cement, ACC Ltd,

Ambuja Cement, Ramco Cements, India Cements, Shree Cement, JK Lakshmi Cement, JK

Cement and Dalmia Bharat ltd historical EV / EBIDTA to progress towards our target

multiple.

In last three years, while Dalmia Bharat ltd traded at average EV / EBIDTA multiple of 8.94,

UltraTech Cement at 12.01x, Acc Ltd at 10.02x, Ambuja Cement at 13.66x, Ramco Cements

at 6.79x , India Cements at 8.08x, Shree cement at 3.58x, JK Lakshmi Cement at 5.37x and Jk

Cement at 7.18x. We assigned an EV / EBIDTA multiple of 7x for the stock. Assigning this

multiple for FY2016E EBIDTA of INR887crore, we arrived at a target price of INR304 for

the stock. This represents an absolute upside of 26% from the current levels of INR241.

Key Risks

Being the commodity product, slowdown in the economy may impact the demand

scenario for the product.

Drop in cement prices can impact company’s topline as well as bottomline.

Particulars Installed Capacity (MTPA)

(12th May

2014)

CMP No.of share

M-Cap Rs

cr Sales EBITDA

EBITDA

Margin

(%) PAT

PAT

Margin

(%) EPS FY13

P/E (x)

FY13

ROE (%)

FY13 EV/per tonne

Ultratech Cement Ltd. 57 2159 27 59182 21319 4839 22.7% 2678 12.6% 97.7 19.1 17.6% 10241

ACC Ltd. 30.1 1354 19 25439 11169 1630 14.6% 1095 9.8% 58.2 19.0 14.0% 6756

Ambuja Cements Ltd. 27.3 211 154 32562 9192 1643 17.9% 1279 13.9% 8.3 22.1 13.5% 9506

Dalmia bharat ltd 17.1 241 8 1960 2791 634 22.7% 197 7.1% 24.3 6.1 6.4% 2599

Ramco Cements Ltd. 16 226 24 5375 3863 1039 26.9% 404 10.4% 17.0 14.9 17.0% 5382

India Cements Ltd. 14.5 71 31 2180 5179 976 18.8% 188 3.6% 6.1 13.7 5.3% 3837

Shree Cement Ltd. 13.5 5997 3 20895 5590 1561 27.9% 1004 18.0% 288.2 16.2 26.1% 12727

JK Lakshmi Cement 5.3 124 12 1464 2055 429 20.9% 175 8.5% 14.9 6.6 14.3% 4660

JK cement 4.5 248 7 1732 2912 557 19.1% 231 7.9% 33.0 8.0 15.8% 6344

- 9 -


Consolidated Income Statement

DESCRIPTION FY11 FY12 FY13 FY14E FY15E FY16E

Net Sales 1746 2342 2791 2902 3483 3970

% Growth - 34% 19% 4% 20% 14%

Total Expenditure 1381 1775 2156 2415 2753 3084

as a % of sales 79.11% 75.77% 77.27% 83.22% 79.06% 77.67%PBIDT (Excl OI) 365 567 634 487 729 887

EBITDA (%) 20.9% 24.2% 22.7% 16.8% 20.9% 22.3%

Other Income 54 76 77 100 115 132

Operating Profit 419 643 711 587 844 1019Interest 172 151 231 301 343 394

Exceptional Items 0 -40 0 0 0 0PBDT 247 452 480 286 501 624Depreciation 175 182 206 233 256 292

PBT 71 270 274 53 245 333Tax 61 123 134 55 63 74

Tax (%) 85.55% 45.43% 48.80% 102.84% 25.55% 22.25%Profit After Tax 10 148 140 -2 183 259Minority Interest -12.5 -18.5 -15.4 26.1 29.2 33

Share in Associates 51.9 14.4 72.3 25.7 28.8 33

Consolidated PAT 50 143 197 50 241 325

PAT(%) 2.9% 6.1% 7.1% 1.7% 6.9% 8.2%

% Growth - 188.23% 37.41% -74.52% 379.19% 34.89%

EO 0 -40 0 0 0 0

PAT Encl EO 50 183 197 50 241 325

PAT(%) 2.85% 7.81% 7.06% 1.73% 6.91% 8.18%

Equity Capital 16.24 16.24 16.24 16.24 16.24 16.24Face Value (In Rs) 2.00 2.00 2.00 2.00 2.00 2.00No. of shares 8.12 8.12 8.12 8.12 8.12 8.12

EPS 6.13 17.67 24.27 6.19 29.64 39.98

- 10 -


Consolidated Balance sheet

Balance Sheet (In INR Cr.) FY 2011 FY 2012 FY 2013 FY 2014E FY 2015E FY 2016E

Share Capital 16.24 16.24 16.24 16.24 18.45 18.45

Reserves & Surplus 2761.45 2873.58 3051.69 3101.91 3616.37 3941.00

Shareholder's Funds 2777.69 2889.82 3067.93 3118.15 3634.82 3959.45

Preference Capital Held by others 0.70 0.70 0.70 0.70 0.70 0.70

Minority Interest 408.63 427.16 517.40 465.66 407.71 341.65

Deferred Capital Investment Subsidy 32.42 32.42 32.42 32.42

Long-Term Borrowings 1803.18 1501.52 2990.04 3588.05 4576.14 5262.56

Deferred Tax Liabilities(Net) 53.09 92.71 131.34 131.34 131.34 131.34

Other Long Term Liabilities 81.93 83.66 211.13 211.13 211.13 211.13

Long Term Provisions 3.15 14.90 27.45 27.45 27.45 27.45

Non-Current Liabilities 1941.35 1692.79 3359.96 3957.97 4946.06 5632.48

Short Term Borrowings 34.28 225.04 292.36 613.96 724.47 811.40

Trade Payables 115.20 159.78 325.52 358.07 418.94 469.22

Other Current Liabilities 227.92 215.26 363.91 509.47 601.18 691.36

Short Term Provisions 19.11 16.67 38.35 38.73 44.78 49.25

Current Liabilities 396.51 616.75 1020.14 1520.24 1789.37 2021.23

TOTAL 5524.88 5627.22 7998.55 9095.14 10811.07 11987.93

Fixed Assets

Goodwill on Consolidation 4.92 405.22 494.37 548.75 603.62

Tangible assets 3,566.58 3,430.98 4,251.29 4,718.93 5,898.66 6,488.53

Intangible assets 25.33 1.83 5.60 5.60 5.60 5.60

Capital work-in-progress 116.68 116.51 550.28 550.28 550.28 550.28

Non-current Investments 466.21 762.17 619.50 681.45 783.67 862.03

Long Term Loans & Advances 139.22 187.02 606.39 606.39 606.39 606.39

Other Non Current Assets 2.82 2.82 2.82 2.82

Non Current Assets 4,314.02 4,503.43 6,441.10 7,059.84 8,396.17 9,119.28

Currents Investments 193.00 431.34 560.85 611.33 672.46 739.71

Inventories 297.64 261.47 351.97 496.28 545.91 600.50

Trade Receivables 100.80 135.43 241.63 270.63 297.69 327.46

Cash and Cash equivalents 454.32 66.37 99.93 189.87 385.40 636.66

Short-term Loans & Advances 161.34 225.42 298.41 462.54 508.79 559.67

Other Current Assets 3.76 3.76 4.66 4.66 4.66 4.66

Current Assets 1,210.86 1,123.79 1,557.45 2,035.30 2,414.90 2,868.65

TOTAL 5,524.88 5,627.22 7,998.55 9,095.14 10,811.07 11,987.93

EQUITY AND LIABILITIES

ASSETS

- 11 -


Consolidated Cash Flow

DESCRIPTION FY 2011 FY 2012 FY 2013 FY 2014E FY 2015E FY 2016E

A.Cash Flow from Operating Activities

Net Profit before tax 71.40 270.40 273.75 53.48 245.41 332.56

Depreciation / Amortisation 175.31 181.73 205.94 232.71 255.98 291.82

Finance Cost 172.43 151.28 231.43 300.86 342.98 394.43

Operating Profit before W/C changes 446.15 554.64 668.44 587.05 844.38 1018.81

Adjustments for working Capital changes

Inventories -87.37 36.17 -55.47 -144.31 -49.63 -54.59

Trade Payables, Liabilities and Provisions 2.40 36.75 49.25 178.50 158.62 144.93

Trade Receivables, Loans and Advances and other current assets -113.14 8.24 -228.96 -193.12 -73.32 -80.65

Cash Generated from Operations 248.04 635.80 433.26 428.12 880.05 1028.50

Direct Taxes Paid -18.29 -93.75 -101.87 -55.00 -62.70 -73.99

Net Cash from Operating activities 229.75 542.05 331.39 373.12 817.35 954.51

Purchase of fixed assets -21.61 -61.50 -374.21 -789.50 -1490.10 -936.56

(Purchase)/ Sale of Current Investments (net) 20.36 -212.66 -113.94 -50.48 -61.13 -67.25

(Purchase) of Non Current Investments 0.00 -291.87 175.41 -61.95 -102.22 -78.37

Net Cash used in investing activities 14.46 -666.67 -618.01 -901.93 -1653.45 -1082.18

Proceeds / (repayment) of Short term Borrowings -27 190.76 -207.33 321.60 110.51 86.94

Proceeds/ (Repayment) of Long term Borrowings -190 -291.36 782.05 598.01 988.09 686.42

Proceeds from issue of shares (net of expenses) 497 -151.14 -244.49 276.00

Finance Cost -166 -9.94 -13.99 -300.86 -342.98 -394.43

Net cash from / (used in) financing activities 112.92 -263.33 313.92 618.75 1031.62 378.93

Net increase in cash and cash Equivalents (A+B+C) 357.13 -387.95 27.30 89.94 195.53 251.27

Cash and cash Equivalents (Opening Balance) 0.06 454.32 66.37 99.93 189.87 385.40

Cash and cash Equivalents (Closing Balance) 454.32 66.37 99.93 189.87 385.40 636.66

B.Cash Flow from Investing Activities

C. Cash Flow from Financing Activities

- 12 -


Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment VP‐Research [email protected]

Sutapa Roy Economy Research Analyst s‐[email protected]

Sanjeev Jain BFSI Research Analyst [email protected]

Neha Majithia Metal, Mineral & Mining Research Analyst [email protected]

Soumyadip Raha Oil & Gas Executive Research [email protected]

Saroj Singh Auto, cement Executive Research [email protected]

Pooja Saraf FMCG, Textiles ,Cons. Goods Research Analyst [email protected]

Khushboo Jaiswal Midcaps Research Executive [email protected]

Ajoy Mukherjee Pharmaceuticals, Agrochemicals Research Analyst [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical Senior VP [email protected]

Ranajit Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Abhishek Sharma Institutional Desk Dealer [email protected]

PMS Division

Siddharth Sedani PMS Research VP [email protected]

Research‐Support

Subhabrata Boral Research Support Asst. Manager Technology [email protected]

Microsec Benchmark its Research

An amount of ̀ 1,00,000 invested individually in all 245 stocks ie, ̀ 2,45,00,000 investment as and

when recommended has appreciated to ̀ 3,23,23,222 giving a return of 31.9 percent. On the same

basis Nifty has given a return of 11.7 percent and CNXMID CAP has given a return of 11.4 percent.

Microsec benchmark its Research and the same is updated on our website at www.microsec.in.

Come, strike the right balance through Benchmarking Research.

50.00%

45.00%

40.00%

35.00%

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

Benchmarking Fundamental Research

Microsec Research Nifty CNX Midcap

stAs on 31 Mar 2014

- 13 -


The investments discussed or recommended in this report may not be suitable for all investors. Investors should use this research as one input into formulating an investment opinion. Additional inputs should include, but are not limited to, the review of other. This is not an offer (or solicitation of an offer) to buy/sell the securities/instruments mentioned or an official confirmation. Microsec Capital Limited is not responsible for any error or inaccuracy or for any losses suffered on account of information contained in this report. This report does not purport to be offer for purchase and sale of share/ units. We and our affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation discussed herein or act as advisor or lender I borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The same persons may have acted upon the information contained here. No part of this material may be duplicated in any form and/or redistributed without Microsec Capital Limited’ prior written consent.

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