Retain ADD on Deccan Cement - Volume strong; high other expense dents margin - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities and Mr. Saurabh Dugar, Institutional Research Analyst, HDFC Securities

In 4QFY21, Deccan Cement's (DECM) utilisation firmed up to 94%, riding on strong demand in the Andhra Pradesh and Tamil Nadu markets. Along with low base of last year, this has led to 50% YoY (4% QoQ) volume uptick. While NSR cooled off 1% QoQ, it remained 13% higher YoY. These drove revenue/EBITDA/APAT by 73/227/ 231% YoY. Elevated maintenance expense more than offset op-lev gains and WHRS benefits. DECM's 2mn MT expansion is expected to gain pace FY22 onwards once COVID impact normalises. A net cash balance and healthy profit outlook should keep leverage under check. We retain ADD rating on the stock with an unchanged target price of INR 610/share (6x its Mar'23 EBITDA).

4QFY21: Sales volume rose 4/53% QoQ to 0.53mn MT, riding on strong demand in the Andhra market. Despite NSR cooling off 1% QoQ, it rose 13% YoY. Opex grew 7% QoQ (3% YoY), led by a surge in other expenses (high maintenance and packing expense), which more than offset moderation in input and power costs (from high WHRS utilisation). Unitary EBITDA, thus, fell 27% QoQ to INR 698/MT (up 114% YoY on strong pricing).

FY21 highlights and outlook: FY21 sales volume rose 22% YoY to 1.79mn MT, riding on strong demand, post 1QFY21. NSR grew a robust 12% YoY, led by benefits of early price hikes. As opex remained flattish, unitary EBITDA jumped 84% YoY to INR 983/MT. OCF grew 3.3x to INR 1.8bn on record profitability and WC contraction. Amidst low Capex outgo, FCF bounced back from negative INR 0.54bn to positive INR 1.4bn. Thus, DECM's net cash increased to INR 1.6bn from 0.1bn YoY. We trim our EBITDA estimates by 4/3% for FY22/23E, as we slightly cut our volume estimates and increase opex assumption. DECM's 2mn MT brownfield expansion will gain pace in FY22E, as COVID situation normalises. We expect it to be operational by FY24E.

Shares of DECCAN CEMENTS LTD. was last trading in BSE at Rs.553.5 as compared to the previous close of Rs. 542. The total number of shares traded during the day was 27495 in over 2348 trades.

The stock hit an intraday high of Rs. 565.25 and intraday low of 536.2. The net turnover during the day was Rs. 15241138.

Source : Equity Bulls

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