Buy Deccan Cements; target of Rs 525: Anand Rathi

Anand Rathi's research report on Deccan Cements

Buoyed up by strong sales volumes in AP/Telangana, Deccan Cements reported firm revenue growth. With greater operating efficiencies, its de-leveraging exercise and rising government investment in its key markets, we expect a 22% CAGR in its PAT over FY18-20. We have a Buy recommendation on the stock, at a lower target price of `525. Mounting demand. With rising demand in its key operating region (AP/ Telangana), Deccan Cements, being a strong regional operator in the South, reported 25.8% y/y volume growth to 0.43m tons, resulting in revenue growing 19.3% to `1.63bn. We expect revenue to clock a 13% CAGR over FY18-20, aided by 8% volume growth at 77% capacity utilisation by FY20.

Outlook

A pick-up in demand and better pricing would lead to higher realisation in coming quarters. We maintain a Buy rating, at a lower target of `525 based on an EV/EBITDA of 6x in accord with the overall reduction in the Nifty valuation. Risk: High pet-coke prices.