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Our View:

* Dalmia’s Q4FY21 performance was slightly ahead of our estimates with volumes at 6.42 MT (+24% y/y and 3.5% ahead of our est.) while healthy beat on EBITDA which came in at Rs 7.76 bn (+53% y/y and 11.6% ahead of our est). Although cost line items were broadly in‐line with estimates, blended NSR/te was ~4% above our expectations which led to overall beat on EBITDA level.

* Company completed 2.25 MTPA brownfield expansion at Bengal during the quarter resulting into total capacity of 30.75 MTPA as of FY21. Dalmia plans to commission incremental ~7.8 MTPA capacity over next 15‐18 months along with setting up of ~38 MW WHRS

* We upgrade our EBITDA estimates by 3.2%/6.2% for FY22E/FY23E respectively. This is primarily on the back of better pricing outlook in Eastern markets as compared to our previous expectations. Accordingly, we factor in volume/EBITDA CAGR of 12.5%/7.5% over FY21‐FY23E. Further, Dalmia is set on its journey to become a net cash company as we envisage net cash reserves of ~Rs 23.7 bn by FY23E despite capex of ~Rs 21 bn over FY21‐FY23E.   

* We believe there is significant valuation re‐rating on the cards for Dalmia as (1) company turns cash rich over next two years and (2) management unveils its formal capital allocation framework and plans to double its capacity (we expect the announcement over next two quarters).   

* At CMP of Rs 1,506, Dalmia is trading at EV/EBITDA of ~8x on FY23E. We remain confident about the valuation re‐rating curve of the company and assign an EV/EBITDA multiple of 12x on FY23E and arrive at TP of Rs 2,213/share with potential upside of 47% (previous TP of Rs 1,987). We have a conviction BUY rating on the stock.

* Key Risk: Further lockdowns across states due to second wave of COVID would hamper volume growth and timelines of capex commissioning.

CON‐CALL HIGHLIGHTS

* Although demand was robust in Q4FY21, there has been uncertainty and volatility in cement industry over last 3 weeks due to second wave of COVID. However, from a longer term perspective, management is very optimistic that India is on the cusp of huge capex up‐cycle and as a result cement industry is likely to witness sturdy growth in coming years (historically cement growth has been 200‐ 300 bps higher than GDP growth during upcycles). Company believes that top 4‐ 5 cement players will be key beneficiaries as they possess ~50% share of total industry.

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