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Market share gains continue

Healthy cash flow to aid deleveraging

* DBL’s 3QFY21 result highlights continued market share gains as volumes grew 14% YoY despite weak demand in the South India, supporting 51% growth in EBITDA.

* We expect market share gains to continue, supported by ~30% capacity expansion over the next one year. DBL has announced a doubling of capacity in three years to 56mtpa. We await further clarity on the same (expect it to be brownfield and focused in the South and Northeast). We have raised our FY21E/FY22E EPS by 4% each on higher volumes. Reiterate Buy

EBITDA up 51% YoY, net debt-to-EBITDA down to 0.6x

* Revenue/EBITDA/PAT increased 18%/51%/658% YoY in 3QFY21 to INR28.6b/INR6.9b/INR1.8b and was 6%/13%/9% above our estimate. Volume rose 14% YoY to 5.8mt (4% above our estimate), led by market share gains and strong demand in East India. Sales of premium offerings grew 66% YoY.

* While blended realization fell 2% QoQ to INR4,926/t (+4% YoY) due to weak pricing, cost per tonne rose 5% to INR3,734 (-3% YoY), leading to a 19% fall in EBITDA/t to INR1,191 (+33% YoY). Costs were higher due to: 1) an 18% QoQ increase in power and fuel cost to INR860/t on higher petcoke consumption cost (at USD84/t, +18% QoQ), and 2) a 10% increase in other expenses to INR733/t on higher promotion spends.

* Revenue/EBITDA/adjusted PAT stood at INR72.4b/INR20.1b/INR6b in 9MFY21, up 1%/26%/205% YoY, while volume grew 1% to 14.26mt.

* DBL has repaid INR13.8b of debt in 9MFY21 (INR6.26b in 3Q). Gross/net debt stands at INR45.9b/INR14b, with net debt-to-EBITDA at 0.56x.

Management commentary – capacity to double in three years

* Capacity is expected to rise by 26% to 36mtpa by Sep’21 and is set to double to 56mtpa in the next three years. The management aims to be a pan India player as against just having a presence in South and East.

* The new 3mtpa clinker in Odisha commercialized from Oct’20 is operating ~70% utilization, with clinker production cost lower by INR75/t. This commissioning has led to higher interest cost and depreciation.

* Demand in East India remains strong (clocked over 10% growth in 3QFY21). The same is expected to improve in South India. Prices in the East are currently at the lowest in the last 5-6 years and is likely to improve.

Expect 15% volume CAGR in FY21-23E; Buy

* With ~30% capacity growth expected over the next 12 months, DBL is well placed to gain market share in East and West India. We estimate 15% CAGR in volumes in FY21-23E, which should drive 22% EPS CAGR.

* Led by strong FCF, we expect net debt to decline further. Valuation is reasonable at 9.2x FY22E EV-to-EBITDA and EV-to-capacity of USD93/t. Reiterate Buy with a TP of INR1,495/share (at 9x Dec’22E EV-to-EVITDA).

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