Buy Dalmia Bharat; target of Rs 3141: Motilal Oswal

Motilal Oswal's research report on Dalmia Bharat

The Indian cement industry witnessed a supply CAGR of 11% over FY07-17; however, the pace of capacity addition slowed down from 46mtpa in FY08-10 to 21mtpa in FY14-17. Demand during the same period increased at only 6% CAGR leading to utilization levels reducing from 90% in FY07 to 62% in FY18. Capacity is expected to grow at 4% CAGR over FY18-23, driven by difficulty in limestone access and credit availability. Rise in cost of land and quick insolvency processes should further restrict aggressive capacity addition. As a result, the industry should witness consolidation and the top-5 players who constitute 47% of the capacity share should account for 55% in FY21.

Outlook

We value the stock at 11.5x FY20E EV/EVITDA ( 2-year average of 1-year forward EV/EBITDA as DBEL's multiple was re-rated in the last two years, post deleveraging of balance sheet) and arrive at a target price of INR3,141/share (implied EV/ton of USD163).