Maintain BUY on Deccan Cement - Strong show; geared up for doubling its capacity! - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities

During 3QFY21, Deccan Cement (DECM) reported strong surge in volumes and profits riding on solid demand in AP, healthy regional pricing and robust cost controls. Thus, its sales vol/revenue/EBITDA/APAT grew 58/80/363/737% YoY. The icing on the cake is a 2.2mn MT expansion announcement (long due). Given that DECM has a net cash balance sheet (INR 1.3bn) and robust cash flow outlook, the doubling of capacity should not deteriorate its balance sheet. We maintain BUY rating on the stock with a revised TP of INR 535/share (5.5x Dec'22 EBITDA).

Strong 3QFY21: Sales volume firmed up 13% QoQ (+58% YoY on a low base) to 0.51mn MT, riding on strong demand in AP markets. Utilisation firmed up to 90%, its highest-ever utilisation in the past 12 years. NSR fell 7% QoQ on both price decline QoQ as well as increased share of sales in AP (low-price market). However, it stood 14% higher YoY. Opex fell 4% YoY and 5% QoQ, aided by both lower input costs (increased PPC sales and benefits from WHRS ramp-up) and lower freight costs (lower lead distance). Thus, unitary EBITDA surged 192% YoY to INR 960/MT. DECM commissioned 6.3MW WHRS during Dec'20. This will drive down its power cost by ~INR 40mn every quarter.

Long due Capex announced: DECM has also announced 2.2mn MT brownfield expansion (after a gap of nine years), thereby doubling its capacity by early FY24E. We increase FY21/22E EBITDA by 12/4% factoring in strong performance and subsequently raise target price to INR 535/share (5.5x Dec'22E EBITDA).

Shares of DECCAN CEMENTS LTD. was last trading in BSE at Rs.395.7 as compared to the previous close of Rs. 400.85. The total number of shares traded during the day was 24458 in over 813 trades.

The stock hit an intraday high of Rs. 412.85 and intraday low of 395.7. The net turnover during the day was Rs. 9906523.

Source : Equity Bulls

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