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Well-placed to gain market share

Expansions enhance growth visibility

* Volume declined by 24% QoQ to 4.89mt in 1QFY22 as it lost some market share in East India because of COVID-led lockdowns at plant locations. However, cost control, which was led by a change in product mix, has kept margin intact.

* The announcement of its much awaited capital allocation policy is a big positive. DBEL announced capacity expansion to 48.5mt/110-130mt by FY24/FY31 from 30.8mt, which provides long-term growth visibility.

* We expect market share gains to continue, supported by ~25% capacity expansion over FY23E. We maintain our FY22E/FY23E EPS estimate. Valuations are also reasonable at 11.4x FY23E EV/EBITDA. We reiterate our Buy rating.

Lower volumes led to miss on EBITDA; margin in line

* Revenue/EBITDA/adjusted PAT increased by 31%/14%/3% YoY in 1QFY22 to INR25.9b/INR7b/INR2.7b, -14%/-10%/-6% v/s our estimate. The miss on our estimate was due to a 24% QoQ decline in volume to 4.89mt (est. 5.39mt).

* Cement realization growth at 8% QoQ was strong and largely in line with our estimate. Blended realization growth was weaker at 4% QoQ (INR5,294/t; - 2% YoY) due to lower revenue from other businesses.

* As a result, blended EBITDA/t rose 18% QoQ to INR1,431/t (-15% YoY) and was in line with our estimate.

* Blended cost per tonne declined by 1% QoQ to INR3,863 due to weaker business activity in other businesses (such as Refractory and Trading).

* The company lowered its gross debt by INR4.76b in 1QFY22. Net debt/EBITDA stood at 0.08x v/s 1.02x at the end of 1QFY21.

Highlights from the management commentary

* DBEL will use up to 10% of the operating cash flow towards shareholders’ return, another 10% towards an Innovation and Green Energy Fund, and the balance will be used to fund growth and maintenance capex.

* It aims to be a pan India pure play Cement company, having a significant presence in its operating geographies, and plans to grow capacity at 14-15% CAGR to 110-130mt by CY31.

* Around INR50b has been allocated towards its new expansion plan, of which INR13b will be spent on clinker debottlenecking. About INR20b will be spent on ongoing capacity expansions at Murli Industries (to be commissioned in Dec’21), Cuttack grinding unit (to be commissioned in Sep’21), and Bihar grinding unit (having an outlay of INR7.8b and expected to be commissioned in Mar’24).

* Planned capex for FY22 is INR40b, of which INR3b was spent in 1QFY22.

Expect 14% volume CAGR over FY21-23E; reiterate Buy

* Led by expansions, DBL is well-placed to gain market share. We estimate a 14% volume CAGR over FY21-23E.

* Valuations are attractive at 11.4x FY23E EV/EBITDA and at an EV/capacity of USD155/t. We reiterate our Buy rating with a TP of INR2,480/share on 12x Sep’23E EV/EBITDA.

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