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Inflating cost dampened profitability

Our view

DALBHARA aspires to be a PAN‐India player with a capacity of +100MTPA by FY31 through organic/inorganic expansion and seeking to enter the other attractive regions of North/Central part of India in the long term. The upcoming capacities will lead the total capacity to 48.5MTPA by FY24E v/s 33MTPA in Q2FY22. Due to the robust demand outlook and the production muscle, we expect strong volume growth of 10/16% y/y in FY22/23E over a strong base.

However, the inflating fuel/diesel cost is the major point of concern, but it is likely to pass on further in supply‐chain with a potential price hike. Additionally, the increasing WHRS/green power (42% of Total Captive Power Capacity by FY24E) set to improve the efficiency and aid to maintain the strong EBITDA/te of +Rs1,250/te in FY22/23E.

Result Highlights

* Revenue stood at Rs25.7bn up by 7% y/y and flat q/q, backed by the healthy volume (up by 6% y/y and 4% q/q) and realization (up by 1% y/y and decline by 4% q/q due to monsoon impact) in Q2FY22.

* On a sequential basis, the NSR moderation along with Inflating input cost & other costs (up by 25/6% q/q respectively) had dented the EBITDA by 12% q/q and y/y both in Q2FY22. On y/y basis, the elevated NSR had cushioned the EBITDA fall against the inflated cost (power/freight/other cost up by 44/20/30% y/y) in Q2FY22.

* PAT decline by 21% q/q and 9% y/y to Rs2.2bn in Q2FY22, led by the decline in EBITDA level v/s YSEC est. of Rs3.2bn in Q2FY22.

* EBITDA/te decline by Rs222/te q/q to Rs1,218/te (v/s Rs1,634/te in Q2FY21) led by the inflating power (up by Rs324/te y/y to Rs990/te) and Other cost (up by Rs245/te to Rs986/te) in Q2FY22.

Valuation

DALBHARA is likely to generate an operating cash flow of Rs50bn over FY22/23E would help to fund its CAPEX internally. At CMP, the stock is trading at 13/11x in FY22/23E on EV/EBITDA. Thus, we retain our BUY recommendation with a TP of Rs2660 (unchanged), valuing the stock at 15x EV/EBITDA on the FY23E estimate.

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