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Research
Dalmia Bharat Enterprises - Poised for Growth... - SKP Securities
Posted On : 2012-07-21 23:07:03( TIMEZONE : IST )
Company Background
Dalmia Bharat Enterprises Ltd (DBEL) is a diversified group having interests in cement, power and refractories. It has cement plants in southern states of Tamil Nadu (Dalmiapuram and Ariyalur) and Andhra Pradesh (Kadpa) with a total capacity of 8.2 million tonnes per annum (mtpa) along with 72 MW captive power plants. It is a pioneer in super specialty cements used for oil wells, railway sleepers and air strips.
Investment Rationale
One of the largest players in Southern India
- DBEL is among the top six cement manufacturing groups by capacity in Southern India, with an installed capacity of 8.2 mtpa. It also holds 45.37 percent stake in OCL India Ltd (dominant player in Eastern India), having an installed capacity of 5.4 mtpa along with 54 MW of captive power plants.
Cement demand in South India to pick up
- Over the last few years, Southern India has witnessed an over capacity scenario owing to commissioning of ~70 mtpa (CAGR of ~20 percent) of new capacity during FY07-12, while demand has remain subdued in the range of ~4 percent.
- Going ahead, we believe that Southern India would add effective capacity of ~21 mtpa over FY12-15E at a slower CAGR of ~5 percent while incremental demand is expected to increase at a CAGR of ~6 percent.
Capacity expansion plan to aid volumes
- The company is implementing a Greenfield expansion of 2.5 mtpa cement plant at Karnataka along with 45 MW captive power plant at a total cost of approx. INR 13.0 billion (excluding cost of captive power plant) which is expected to be completed towards the end of Q4FY14E.
- OCL India is setting up 1.5 mtpa grinding unit at Medinipur, West Bengal for a total cost of INR 5.0 billion which is expected to get commissioned by November 2013.
Strong balance sheet to drive growth
- The company is likely to fund most of its expansion through internal accruals. During FY12-14E, DBEL is expected to generate cash flow from operations of ~11.15 billion, which would be utilized as capex and towards repayment of debt.
Valuation
We rate a BUY rating on DBEL with a price target of INR 158.6/share, implying an upside potential of 36.2 percent from current levels. Our target price is based on SOTP valuation of DBEL's FY14E EV/EBITDA multiple of 3.75x and DBEL's OCL India stake at FY14E EBITDA multiple of 4x.