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Beats our estimate; on track to reach 49mtpa by FY24E

* DALBHARA’s 1QFY23 earnings were above our estimate, driven by higher volume, better realization, and lower OPEX/t. EBITDA stood at INR6b (est. INR5b) and OPM came in at 18% (est. 16%). PAT (after MI) stood at INR2b (est. INR1.4b).

* It added a cement/clinker capacity of 1.1mtpa/2mtpa in 1QFY23 through debottlenecking at various plants. Its total clinker/cement capacity currently stands at 20.9mtpa/37mtpa. The management aims at a total clinker/cement capacity of 23.7mtpa/49mtpa by FY24. Moving towards its sustainability goal, it has added 41MW of renewable energy (36MW of solar power and 5.4MW of WHRS), taking its total renewable energy portfolio to 104MW. It aims to increase its renewable energy capacity to 173MW by FY23, via a mix of WHRS and solar. It has reduced its CO2 emission in the cement business to 468kg/t from 489 kg/t in FY22.

* We have a Buy rating on the stock and will review our assumptions post the concall.

Volumes 2% above our estimate; EBITDA/t at INR945

* Consolidated revenue/EBITDA/PAT stood at INR33b/INR6b/INR2b (+27%/- 18%/-30% YoY and 3%/14%/45% above our estimate). Sales volumes grew 27% YoY to 6.2mt, with over 30% growth in South India, 2% above our estimate. Realization grew 1% YoY and 4% QoQ to INR5,326/t, 1% above our estimate

* OPEX/t rose 14% YoY on account of a 38%/4% increase in variable costs/freight expenses. Fuel consumption cost/t stood at USD218 v/s USD109/USD180 in 1Q/4QFY22. However, employee costs/t and other expenses/t declined by 15% and 7% YoY, respectively, benefitting from higher volumes

*  Impacted by higher costs, OPM declined by 10pp YoY and EBITDA/t fell 35%. Lower debt led to a 21% YoY decline in interest expenses (borrowing cost stood at 5.4% in 1QFY23 v/s 5.7% in 1QFY22). Other income was lower by 15% YoY and 58% QoQ. ETR stood at 25.4% v/s 25.1% in 1QFY22.

* The company remains net cash positive, with a net cash balance of INR2b v/s INR14b as of Mar’22 (including the MTM value of IEX investment of INR21b/INR30b in 1QFY23/4QFY22). Its net debt/EBITDA ratio stood at (0.08x) v/s (0.59x) as of Mar’22.

Valuation and view

* The stock trades at a FY23/FY24 EV/EBITDA ratio of 13.8x/10.8x and an EV/t of USD88/USD76. It traded at an average EV/EBITDA ratio of 10.6x/9.4x in the last five/10 years. With an expected improvement in earnings and the management’s focus on continuous capacity expansions, without leveraging its Balance Sheet, we expect the stock to trade at higher multiples.

* We have a Buy rating on the stock. However, we will review our assumptions after the concall at 10:30am on 5th Aug’22

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