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Superior profitability continues
We recommend BUY on Dalmia Bharat with a TP of Rs 1,450 (12x FY21 consolidated EBITDA). In 4QFY19, Dalmia sustained its superior margin (EBITDA at Rs 1,092/MT, despite high energy costs and lower incentives YoY). The co also continued to pare off debt, despite large capex.
HIGHLIGHTS OF THE QUARTER
* During 4QFY19, Dalmia delivered earnings recovery, as consolidated net sales /EBITDA/PAT grew by 7/5/46% YoY to Rs 28/6.1/1.9bn respectively, after posting decline in the preceding three quarters.
* Sales volume rose 8% YoY (+25% QoQ) to 5.6mn MT, led by strong growth in south and NE regions, while high utilization at its eastern plants slowed the growth. Overall utilization rose to 89% vs 83/72% YoY/QoQ.
* Blended NSR increased 4% QoQ. Strong QoQ price recovery in the south markets (40% of total sales), amid marginally weak pricing in east/NE region drove ~200bps NSR gain. Additionally, both incentives and non-cement revenue increased QoQ which added ~200bps to the NSR increase. Opex fell 1% QoQ, benefitting from decline in energy prices, operating leverage gains and rising cost controls. On YoY basis, the cost controls offset energy inflation impact.
* Thus, Dalmia’s unitary EBITDA expanded 26% QoQ to Rs 1092/MT (though down 4% YoY on marginally lower realisation). Lower interest cost (on sharp 20% debt reduction) and zero tax boosted adj PAT growth.
* In FY19, Dalmia delivered 10% volume growth. However, subdued pricing in south, lower incentive income (Rs 107/MT vs Rs 207/MT YoY) and high energy costs dragged down unitary EBITDA by 14% YoY to Rs 1030/MT. Thus, EBITDA fell 3% YoY. Dalmia’s subsidy backlog reduced by Rs 4.4bn on Rs 6.5bn cash receipt. The co used also reduced net debt by 11% to Rs 31bn. It spent Rs 12bn in FY19 towards ongoing capex.
* Near term outlook: We estimate Dalmia to deliver 11/15/47% volume/EBITDA/PAT CAGR during FY19- 21E. Internal accruals should support further debt reduction despite large Rs 41bn capex outgo.
We like Dalmia for its high op margin (of Rs 1,000/MT+ on strong cost control), expanding regional presence (all India ex northern region) and fast growth at prudent cost (from 25mn MT in FY18 to 37mn MT in FY22E at capex rate of below USD 70/MT). We value Dalmia at 12x FY21 consolidated EBITDA (implied EV of USD 138/MT).
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