About the Company

Founded by Jaidayal Dalmia in 1939, Dalmia Bharat possesses India’s fifth largest installed cement manufacturing operational capacity of 30.75 million tonnes per annum (MTPA). This capacity is spread across 13 state-of-the-art manufacturing plants in nine States. Dalmia Bharat contributes ~6% of the entire country’s cement capacity. It has a brand portfolio of three marquee brands: Dalmia Cement,
Dalmia DSP and Konark Cement. These brands are available as Portland Pozzolona Cement, Portland Slag Cement, Composite Cement, and Ordinary Portland Cement in select markets.

 

 

Q2FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q2FY22 Q2FY21 YoY % Q1FY22 QoQ % H1FY22 H1FY21 YoY%
Sales 144 42 242.86% 42 242.86% 186 87 113.79%
PBT 82 7 1071% 10 720.00% 92 16 475%
PAT 67 5 1240% 10 570.00% 77 11 600.00%
Consolidated Financials (In Crs)
  Q2FY22 Q2FY21 YoY % Q1FY22 QoQ % H1FY22 H1FY21 YoY%
Sales 2622 2353 11.43% 2613 0.34% 5235 4309 21.49%
PBT 307 367 -16.35% 386 -20.47% 693 666 4.1%
PAT 209 232 -9.91% 238 -12.18% 447 420 6.43%

 

Detailed Results:

  1. The company had 11% YoY rise in revenues and a 10% YoY fall in PAT.
  2. Dalmia Bharat saw volume growth of 6% YoY while EBITDA stood at Rs 620 Cr.
  3. Volume grew 6.2% YoY.
  4. EBIDTA margins stood at 24.1%.
  5. EBITDA/Ton was at Rs 1217.
  6. Net debt to EBITDA stands at -0.48X.
  7. The company completed the Commercialization of Cement capacity (Line 2) of 2.25 MnT near Cuttack, Odisha.
  8. Dalmia also commenced trial production at the 3MT plant at Maharashtra.
  9. The company declared a dividend of Rs 4 per share in Q2.

Investor Conference Call Highlights:

  1. The company has identified 3 strategic long-term targets which are
    1. to be a pan-India pure-play cement company
    2. to maintain a significant presence in every market it serves
    3. to grow its capacity to between 110-130 MTPA by 2031
  2. To mitigate the impact of higher fuel prices, the company shifted its product mix from PSC to PCC which has less fuel usage and is of similar quality.
  3. PSE products declined from 27% in Q1 to 14% in Q2.
  4. The company reduced its pet coke usage from 47% to 33% in the current quarter.
  5. Green fuel usage increased from 9% to 12% QoQ.
  6. The management is expecting to add 9 megawatts of WHRS power and 70-plus megawatt of solar power in the latter half of this year.
  7. The current capacity stands at 33MTPA with successful commercialization of KCW and Odisha plants that have capacity of 2.25MTPA.
  8. The management is on track to increase cement capacity to 36 million tonnes by March ’22.
  9. The company has sold 21.4 lacs shares in IEX, and its stake in IEX now stands at 14.8%.
  10. The board has approved the slump sale of Hippostores Technology Private Limited for Rs 115 Cr. The sale should be concluded by 31st Dec 2021.
  11. The management saw prices in the East zone stay weak in the current quarter due to low demand and Q2 being a weak quarter in general in the East. However, it is seeing prices improve in the East and expects the rise to continue in the future.
  12. The management expects to spend around Rs 3000 Cr in capex in FY22 and reach 48.5 MT capacity in the next 12 months.
  13. The company has been able to make fuel cost savings to the tune of Rs 80-100 per ton due to use of green fuels.
  14. The company’s consumption rate of its input cost on power and fuel has ranged at around $120 to $130 per tonne.
  15. The company was able to contain its freight costs which grew by 1% (including railways incentive of Rs.16 Cr) due to reduction in lead distance by 12-14Km & careful tracking of truck movement.
  16. The company’s per tonne procurement cost of slag in Q2 stood at Rs.1100 – 1300.
  17. The management is taking steps to increase the concentration of composite cement in the product mix as it believes it is “the cement of the future”.
  18. The company had a blended cement mix of 75% in this quarter, however it is aiming blended mix of 100% by 2025.
  19. The company did a write-off of Rs.30 Cr for a corporate loan given in 2010.
  20. The company’s power consumption to cement is now 62 kWh per tonne of cement which is one of the lowest power consumptions per tonne of cement & this helped to contain the power cost.
  21. The management expects to receive annual incentives of Rs.200 Cr per year till FY24.
  22. The realizations in the current quarter have dropped to due to low selling prices across the country.

Analyst’s View:

Dalmia Bharat is one of the leading cement makers in India. The company has had a decent quarter with an 11% YoY rise in revenues despite a seasonal drop in industry sales due to monsoons. The company has done well to maintain Debt to EBITDA at negative levels and has seen commercialization of a 2.25 MT capacity in Odisha in Q2. But the company has not been able to grow in terms of utilization level which has remained at 60% since 2019. It is planning to reach 100% blended cement sales by 2025 from the current 75%. It remains to be seen whether the company will be able to keep its debt low while trying to maintain its ambitious capacity growth and whether its expansion plans will bear fruit according to the management and board expectations. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the high EBITDA/ton and high carbon efficiency of its operations, Dalmia Bharat can prove to be a pivotal cement sector stock going forward.

 


 

Q1FY22 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 42 45 -6.67% 55 -23.64%
PBT 10 9 11.11% 5 100.00%
PAT 10 6 66.67% 5 100.00%
Consolidated Financials (In Crs)
Q1FY22 Q1FY21 YoY % Q4FY21 QoQ %
Sales 2615 1956 33.69% 3186 -17.92%
PBT 372 299 24% 417 -10.79%
PAT 277 191 45% 630* -56.03%

*Contains negative tax charge of Rs 213 Cr

 

Detailed Results:

  1. The company had 34% YoY rise in revenues and a 45% YoY rise in profits due to the low base in Q1FY21.
  2. Dalmia Bharat saw volume growth of 33% YoY while EBITDA grew 14% YoY.
  3. EBITDA/Ton was at Rs 1432.
  4. The company reduced its gross debt by Rs 476 Cr.
  5. Net debt to EBITDA stands at 0.08 vs 1.02 a year ago.
  6. EPS grew 40% YoY to Rs 14.23.
  7. The company unveiled its long term a goal of reaching 110-130 MTPA capacity by 2031.
  8. Its current capex plan is to expand capacity from the current 30.8 MTPA to 48.5 MTPA.
  9. The clinker capacity is also to be expanded to 23.4 MTPA from the current 18.68 MTPA by FY24.
  10. The company expects the current capex plan to include:
    1. Rs 1950-2000 Cr for ongoing capacity expansion of 7.75 MTPA
    2. Rs 4700-5000 Cr for new capacity building including 10 MTPA from clinker bottlenecking
    3. Rs 1000-2000 Cr for green initiatives
    4. Rs 900-1000 Cr for maintenance capex

Investor Conference Call Highlights:

  1. The company has identified 3 strategic long-term targets which are
    1. to be a pan-India pure-play cement company
    2. to maintain a significant presence in every market it serves
    3. to grow its capacity to between 110-130 MTPA by 2031
  2. Capacity expansion in the last 10 years was uneven with 1st 5 years having a CAGR of 25% while the last 5 years had a CAGR of only 4%. The company is now aiming to expand more stably and predictably and maintain a CAGR of 15% capacity expansion in the next 10 years.
  3. The management announced that the company is aiming to become a 100% blended cement company in the next 5 years.
  4. Its carbon footprint is below 500 kgs of carbon dioxide per ton of cement and it is aiming to reach 400 kgs by 2040.
  5. As part of the announced capital allocation policy, the company is looking to use 10% of its operating cash flows to develop and adopt innovative technologies to combat climate change.
  6. It is looking to allocate Rs 1000-1200 Cr in the next 2-3 years for waste heat recovery systems, solar power and equipment, and IT to substitute fossil fuels and clinker. By March 2023, the solar capacity is expected to be at 87 MW and the WHRS is expected to be at 62 MW.
  7. The company is targeting a ROCE of 14-15% in the next few years.
  8. The management has stated that although the current debt to EBITDA is very low, it can expand due to the company’s expansion initiatives. The company will be looking to maintain this figure below 2 times Debt to EBITDA.
  9. The company has decided to divest the retail business from DCBL and become a pure-play cement business. It will be looking to complete this in the next 3-4 months and has made an allocation of Rs 40 Cr for expenses till the divestment is completed.
  10. The company will be maintaining most of its treasury in AAA or AA+ rated debt instruments only.
  11. The company expects the commercial production of Murli Cement from the Odisha grinding unit to start by December 2021. This will expand the total capacity to 36 MTPA.
  12. The Bihar grinding unit is expected to start production by March 2024. The remaining capex for this unit is around Rs 2000 Cr.
  13. The Bokaro plant will see a brownfield expansion of 1.7 MTPA.
  14. DBCL also sees that a capacity of 5.3 MTPA can be added through debottlenecking across all plants.
  15. The company is also aiming to reach 100% renewable energy by 2030 and 100% energy productivity by 2030.
  16. The company has kept RM costs at Rs 855 per ton while fuel & energy costs have risen to Rs 1054 per ton due to a rise in petcoke and coat costs.
  17. Green fuel now accounts for 9.1% of its fuel mix and DCBL is looking to increase it to 20% by the end of FY22.
  18. The logistics costs have also risen marginally to Rs 1057 per ton.
  19. The management states that the company lost market share in the East zone in Q1 due to the stoppage of the Cuttack grinding unit for few days on account of COVID and changes in its marketing plan.
  20. The management has stated that the company will be slowly moving away from PPC, and it will be focusing on Portland Composite Cement and Portland Slag Cement.
  21. The company has done Rs 300 of capex in Q1 and it expects to do a further Rs 3700 Cr in the rest of FY22.
  22. The company will be mainly making PPC for its business in the South zone.
  23. The management remains confident that DCBL will be able to ramp up its limestone reserves in its key sites and get new blocks in new areas.
  24. The management expects further consolidation to take place in the cement industry with the top 4-5 players growing at a CAGR of 14-15% in the next decade.
  25. In the South zone, DCBL is adding to capacity in TN and Kerala as the management feels that DCBL will be getting a better cost advantage in these states than other cement players from Andhra Pradesh. Most of the capacity will also be used to service TN and Kerala markets.
  26. The company also has plans to expand in the North and Central zones and it will reveal them in time.
  27. The greenfield grinding units in TN and Kerala should be completed by March 2023 according to the management.
  28. The company will be ready to divest the rest of its stake in IEX as and when it requires funds for its proposed capital allocation.
  29. Despite having capacity utilization at near 60%, the management wants to go for further capacity utilization as it doesn’t believe that capacity expansion should be taken only when utilization hits 80% and that the company should be looking to expand capacity according to its vision of the future.
  30. The management has stated that it will also be on the lookout for possible inorganic opportunities for expansion but it will be dependent on it for reaching the long-term expansion goals.
  31. The company projections state that it will not need any extra debt to be able to sustain a growth rate of 10% CAGR for the next 10 years.
  32. The consolidation cycle in the cement industry is expected to mainly be driven by the decline of smaller players and the increasing debt burden of them while making expansions.
  33. The WHRS will be commissioned by June-July 2022.
  34. The company maintained a cement to clinker ratio of 1.65 in FY21.
  35. The management does not expect much price pressure going forward.

Analyst’s View:

Dalmia Bharat is one of the leading cement makers in India. The company has had a decent quarter and it has unveiled an ambitious capital allocation plan for the next decade which targets reaching a capacity of 110-130 MTPA by 2031 and 48.5 MTPA by 2024. The company has done well to maintain EBITDA/ton above Rs 1400 despite rising fuel and petcoke prices YoY. It is looking to make a total capex of Rs 4000 Cr in FY22 which is including setting a new solar facility, capacity expansion, and debottlenecking in current plants. But the company has not been able to grow in terms of utilization level which has remained at 60% since 2019. It remains to be seen whether the company will be able to keep its debt low while trying to maintain its ambitious capacity growth and whether its expansion plans will bear fruit according to the management and board expectations. Nonetheless, given the strong brand image of the company, the efficient utilization of its plants, and the high EBITDA/ton and high carbon efficiency of its operations, Dalmia Bharat can prove to be a pivotal cement sector stock going forward.

 


 

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