Maintain BUY on Dalmia Bharat - Robust show continues - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

Dalmia Bharat (DBEL) reported a strong 3QFY21 performance, led by robust volume growth (production ramp-up in east), healthy pricing (south-led) and continued cost controls. DBEL continues to gain market share in both east and south regions. Consolidated net sales/EBITDA grew 18/51% YoY to INR 28.6/6.9n respectively. DBEL has also used its cash balance to reduce debt. We continue to like the company for its continued strong volume and margin performance. Despite major ongoing expansions, the balance sheet remains well under control. We maintain our BUY rating on the stock with a revised target price of INR 1,470 (10.5x Dec'22E consolidated EBITDA).

Strong sales growth on capacity ramp-up in east: DBEL's sales volume firmed up 14/21% YoY/QoQ to 5.8 mn MT. This is led by strong production ramp-up in the east (new Odisha clinker line 70% utilisation, Kalyanpur at 62%) and better-than-industry performance in south. Despite 2% QoQ fall, NSR remained 4% up YoY, aided by continued healthy pricing in south markets. DBEL's trade: non-trade mix stood at 65:35.

Healthy margin: Despite DBEL's slag and pet coke prices rising 10/18% QoQ, overall input cost remained flattish. Freight cost went up only 1% YoY, despite ~15% YoY rise in diesel prices. In addition to efficiency gains, better fixed cost controls, overall opex fell 3% YoY, boosting unitary EBITDA by 33% YoY to INR 1,191/MT. Robust volume and margin performance led to consolidated EBITDA rise by 51% YoY. On a low base, APAT rose 6.6x.

Capex and balance sheet: During 3QFY21, SRCM started commercial production from its 3mn MT clinker expansion in Odisha. It also debottlenecked grinding capacity at various locations by 2mn MT. DBEL's pending 8mn MT SGUs and Murli plant will become operational between 4FY21 and FY23E, taking its total capacity to 38mn MT. DBEL has continued to liquidate cash to reduce its debt on books. Thus, gross debt fell 13% YoY to INR 45.9bn. Net debt/EBITDA (ex IEX and MFs) remained comfortable at 1.2x vs 1.3x YoY, despite ongoing expansion.

Outlook: We continue to like DBEL for its continued strong volume and margin performance. Despite major ongoing expansions, DBEL's balance sheet remains well under control. We increase EBITDA estimates for FY21/22/23E by 8/5/6%, factoring-in higher volume growth. We maintain our BUY rating on the stock with a revised target price of INR 1,470 (10.5x Dec'22E consolidated EBITDA).

Shares of Dalmia Bharat Ltd was last trading in BSE at Rs.1223 as compared to the previous close of Rs. 1265.25. The total number of shares traded during the day was 14832 in over 1375 trades.

The stock hit an intraday high of Rs. 1305.1 and intraday low of 1216.95. The net turnover during the day was Rs. 18831151.

Source : Equity Bulls

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