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Capital allocation policy deferred

Dalmia Bharat’s (DALBHARA) Q4FY21 EBITDA at Rs7.8bn (up 53% YoY) was broadly in line with consensus estimates. Volumes grew 24% YoY implying a 2- year CAGR of 7%. While realisation increased 4% QoQ (8% YoY), total cost/te also rose 4.5% QoQ resulting in broadly flat EBITDA/te QoQ at Rs1,209/te (up 23% YoY). Management deferred the announcement of capital allocation policy (which aims to double the company’s capacity) citing covid resurgence.

While near-term volumes may be impacted due to various government restrictions to combat covid, management expects demand to bounce back as situation normalises. Factoring-in the improved realisation, we increase our FY22E-FY23E EBITDA by 6- 7% and raise our target price to Rs1,600/sh (earlier: Rs1,350) based on unchanged 8x FY23E EV/E. Maintain ADD. Key risk: Lower demand / pricing.

* Revenues increased 32% YoY to Rs32.8bn. Volumes were up 24% YoY (2-year CAGR of 7%) to record high quarterly volumes of 6.42mnte (I-Sec: 6.77mnte), which excluded ~0.4mnte of volumes from trial run of the newly commissioned 2.25mnte grinding unit at West Bengal. Realisation grew 4% QoQ to Rs4,896/te owing to price hikes in East while it was up 8% YoY aided by higher prices in South.

* EBITDA/te increased 23% YoY to Rs1,209/te (I-Sec: Rs1,255/te). Total cost/te was up 2% YoY and 4.5% QoQ to Rs3,902/te. Raw material plus power & fuel cost/te grew 4% QoQ owing to steep increase in slag prices (to Rs1,200-1,700/te) and 5% QoQ rise in consumption price of fuel to US$87/te. Petcoke constituted 57% of the fuel mix while coal was at ~35%. AFR is currently at 8% of the fuel mix and is expected to increase to 15% by FY22-end. Freight cost/te rose 4% QoQ and 7% YoY owing to increase in diesel prices and lower direct despatches QoQ. Employee costs increased 10% QoQ and other expenses rose 20% QoQ due to increase in packing bag prices, higher ad spend, etc.

* Capital allocation policy deferred: Management deferred announcement of its capital allocation policy (which aims to double the company’s capacity in the medium term) citing covid resurgence. However, the company expects to continue to grow ahead of industry with commissioning of 2.25mnte Odisha grinding unit in Q2FY22, 3mnte Murli industries in H2FY22 and 2.5mnte Bihar grinding unit in FY23. Balance capex is estimated at Rs10bn for East grinding units, Rs3bn for Murli and Rs6bn7bn for maintenance / efficiency capex over FY22-FY23. Board has approved Rs1bn towards retailing of allied building material products.

* Company turning almost net debt free: Net debt declined by Rs27bn (including Rs12bn MTM gain on IEX investments) in FY21 to just Rs1bn. Company generated Rs33bn OCF including working capital release of Rs7.5bn, which was used to repay net debt of Rs15bn, towards capex of Rs14bn and Rs4bn for buyback.

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