Maintain BUY on Dalmia Bharat - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities.

Dalmia Bharat (Q4FY20): Healthy cost controls; earnings hit by Covid. Maintain BUY
(TP Rs 930 CMP Rs 560 MCap Rs 106 bn)

We retain BUY on Dalmia Bharat with a TP of Rs 930. We like the co for its distribution strength across its markets and healthy balance sheet. Covid lockdown in Mar-20 and weak pricing pulled down consol rev/EBITDA/APAT 11/16/86% YoY. A weak 4Q slowed FY20 rev/EBITDA growth to 1/9% YoY. FY20 unitary EBITDA remained buoyant at Rs 1,091/MT (+6% YoY) led by lower input costs and asset sweating. APAT fell 23% YoY on higher dep and tax outgo. Despite large capex in FY20, Dalmia reduced net debt ~11% YoY.

4QFY20 analysis: Covid lockdown pulled down sales vol by 7% YoY to 5.2mn MT (ex covid +7% vol growth). This was Dalmia's first vol decline after many quarters! Weak pricing across east and south drove 4% NSR fall YoY. On cost front, Dalmia's slag/petcoke prices in 4Q fell 15/27% YoY and drove 3% opex decline. This cushioned unitary EBITDA fall to 10% YoY to Rs 983/MT. Thus, consol rev/EBIDTA fell 11/16% YoY. INR depreciation bloated MTM led int cost (on forex loan) and drove 86% APAT decline.

Healthy FY20: Despite weak 4Q, Dalmia's vol rose 3% YoY (ahead of -1% for industry) led by vol growth in the east/NE and slight decline in south. Amid weak pricing, low petcoke/slag prices and asset sweating drove 6% unitary EBITDA expansion to Rs 1,091/MT. Thus, consol rev/EBITDA rose 1/9% YoY. Higher Cash PAT and WC release led to 27% rise in OCF to Rs 23.4 bn. Despite 45% jump in capex outgo, FCF rose 8% YoY to Rs 9.9bn and drove 11% reduction in net debt to Rs 39.6bn (we treat the IEX investment of Rs 7.6bn and locked MF units worth Rs 3.5bn as long term investment).

Capex update and growth outlook: During 1HFY21, 3.1mn MT clinker unit in Odisha and 1mn MT GU in Bokaro will be commercially operational. Thereafter, during 2HFY21/FY22, two SGUs of 2.5mn MT each in WB/Odisha will get commissioned (currently delayed by six months). Murli plant's operationalisation is delayed to 2HFY22E due to Covid. We expect Dalmia's vol to fall 8% YoY in FY21E and rebound by 25% in FY22E. We expect its unitary EBITDA to moderate to ~Rs 910/MT during FY21-22E (18% lower vs FY20), on account of lower utilisation.

Maintain BUY: We trim Dalmia's EBITDA est for FY21/22E by 3/3% resp, to factor in Covid impact on sales and expansion delays. We remain positive on the co, owing to its strong distribution strength across east/NE/south regions. Its lean operating costs also cushion the regional price volatility. Dalmia's balance sheet should remain comfortable despite large expansions (net Debt/EBITDA under 2.5x). We maintain BUY with unchanged TP of Rs 930 (10x its FY22 EBITDA, in-line its five year mean). Our TP implies replacement cost of Rs 5.6bn/MT.

Shares of Dalmia Bharat Ltd was last trading in BSE at Rs.559.95 as compared to the previous close of Rs. 563.5. The total number of shares traded during the day was 8871 in over 685 trades.

The stock hit an intraday high of Rs. 569.2 and intraday low of 549.8. The net turnover during the day was Rs. 4981340.

Source : Equity Bulls

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