Dalmia Bharat LTD.: '625 '469 Fy16E Ev/Ebitda 8.9X

Dalmia Bharat Ltd.
BUY
Target Price `625 CMP `469 FY16E EV/EBITDA 8.9x
Index Details Dalmia Bharat, with a group capacity of 24 MTPA (by December
Sensex 25,589 2014) has successfully consolidated its position in the Indian
Nifty 7,649 cement industry. Through sustained organic expansion and
BSE 100 7,746 strategic acquisitions, Dalmia Bharat has catapulted to the
Industry Cement position of the fourth largest cement manufacturer in India.
With its expanded capacity, it is well-geared to capitalize on the
Scrip Details anticipated pick-up in the investment cycle.
Mkt Cap (` cr) 3,612
BVPS (`) 374.2 We expect Dalmia Bharat to post healthy revenue and earnings
O/s Shares (Cr) 8.1 growth over FY15-FY16. Revenues are likely to grow at a CAGR
Av Vol (Lacs) 0.01 of 36% to `5428 crore and PAT to grow to `381 crore in FY16
52 Week H/L 509/95 (from a loss of Rs 8.4 crore in FY14). We initiate coverage on
Div Yield (%) 0.5 Dalmia Bharat as a BUY with a Price Objective of `625
STOCK POINTER
FVPS (`) 2.0 representing a potential upside of 33% over a period of 18
months. At the CMP of `469, the stock is trading at an
Shareholding Pattern EV/EBITDA multiple of 7.8x FY16E and at an EV/Tonne of
Shareholders % cement capacity in FY16 of $62. The replacement cost currently
Promoters 62.8 is in the range of US$120-140 per tonne.
DIIs 3.3
FIIs 10.9 Our optimism regarding the companys prospects is based on
Public 22.9 the following:
Total 100.0
Dalmia Bharat has successfully diversified its presence
Dalmia vs. Sensex in the lucrative cement-deficit East and North East India
region through stake acquisitions in Adhunik Cements,
Calcom and OCL India. Further, creation of the Telangana
state is expected to help ease the demand-supply
imbalance in the South.
Dalmia Bharats on-going capacity expansion is expected
to be commissioned in December 2014. The timing of the
expansion is ripe as the investment cycle in expected to
revive over FY15-FY16.
Key Financials (` in Cr)
Net EPS EPS Growth RONW ROCE P/E EV/EBITDA
Y/E Mar EBITDA PAT
Sales (`) (%) (%) (%) (x) (x)
2013 2791 634 197.1 24.3 37.2 6.4 6.7 19.3 11.0
2014 2955 414 -8.4 -1.0 -104.1 -0.3 2.4 -452.3 18.9
2015E 3987 673 78.2 9.6 -1029.3 2.5 4.5 48.67 13.3
2016E 5428 1148 381.3 47.0 387.2 10.8 9.1 9.99 7.8
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This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Operating efficiencies in the form of captive power plant,
limestone reserves, and lower freight costs augur well for
the company against the backdrop of rising input costs.
Further, cement prices in the South have already witnessed
a spike of 10-20% since the start of June 2014. With an
improved demand scenario and firm cement prices, we
expect Dalmia Bharats EBITDA margin to expand to 21% in
FY16 from 14% in FY14.
Higher than expected ramp-up in utilization of the new capacity in Belgaum,

Karnataka and/or in its existing facilities and further expansion in EBITDA margin are
upside triggers to our Price Objective.
Capacity expansion to fuel revenue growth

Dalmia Bharat has grown from a capacity of 250 TPD at incorporation in 1939 to a
total group capacity of 24.1 MTPA (by December 2014). Post completion of the
ongoing capacity expansion, Dalmia Bharat will emerge as the fourth largest player
in the cement industry. We expect gross cement revenues to clock a 2 year CAGR
of 36% driven by 26% growth in cement volumes. Cement realisations have already
witnessed a spike of 10%-20% in the South since the start of June 2014. We expect
realizations to increase at a 8% CAGR over FY15-FY16E. We expect aggregate
capacity utilizations of 46% and 61% in FY15 and FY16 respectively.
Moving to lucrative East and North eastern markets

From a pre-dominantly Southern India presence, Dalmia Bharat has successfully
diversified its presence in the lucrative East and North eastern regions through stake
acquisitions in OCL India (Odisha), Adhunik Cements (Meghalaya) and Calcom
Cements (Assam). The recent greenfield capacity expansion in Belgaum, Karnataka
provides access to South Maharashtra markets as well. Dalmia Bharats revenue
proportion from the South has declined from 100% in FY11 to 79% in FY14. With
healthy demand growth expected in the East and North East, acquisition of Bokaro
Cements and capacity expansion in Calcom, the revenue proportion from South is
further expected to reduce to ~60% in FY16.
Valuation
We initiate coverage on Dalmia Bharat as a BUY with a Price Objective of `625
representing a potential upside of 33% over a period of 18 months. At the CMP of Rs
469, the stock is trading at an EV/EBITDA multiple of 7.8x FY16E and at an
EV/Tonne of cement capacity in FY16 at $62. The Price Objective is derived by the
SOTP method. The replacement cost currently is in the range of US$120-140 per
tonne.
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- 2 of 22- Thursday 7 August, 2014
Company Background
Dalmia Bharat is a holding company with 85% stake in Dalmia Cement Bharat
and a 100% stake in Dalmia Power Ltd. Incorporated in 1939, Dalmia Bharat has
grown to become the fourth largest cement manufacturer in India. The group
capacity (including its 48% associate, OCL Indias capacity) will expand to 24.1
MTPA in December 2014 from 18.6 MTPA in FY14. Cement revenues
contributed 89% of total revenues in FY14, with refractory sales, power sales
and management services accounting for the remaining.
Dalmia Bharat Corporate Structure
Kohlberg Kravis Dalmia Bharat Ltd.

Roberts' (Holding Co; listed)
15% 85% 100%
Dalmia Power Ltd.
Dalmia Cement Bharat Ltd. 26% 74%
DCB Power Ventures
Adhunik Calcom Bokaro

Cements Cement India OCL India (48%) Cement
(100%) (76%) (74%)
Source: Dalmia Bharat , Ventura Research
Capacity expansion and regional diversification spell favorable

prospects
Dalmia Bharat has grown from a capacity of 250 TPD at incorporation to a total
group capacity of 24.1 MTPA, expected to be commissioned by December 2014.
Post the expansion, Dalmia Bharat will emerge as the fourth largest player in the
cement industry.
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Dalmia Bharats Growth Timeline
FY15: Group Capacity of 24.1

Timeline MTPA; 4th largest in India by
Capacity
1939 2005 2010 2012 2014
Acquired
Incorporated Expanded
Greenfield Acquired 74% stake in Bokaro
with a capacity
from plant Cements in March 2014 from Jaypee
grinding Group for Rs 690 crs; plant is
capacity of 1.5MTPA commissioned Calcom Adhunik
with a capacity running at an average utilization
250 TPD to
3.5MTPA of 2.5 MT Acquired 50% levels of 70%; major markets are
stake in Kolkata Acquired 100% stake in West Bengal, Bihar and Jharkhand;
27MW power based Calcom in Meghalaya based Adhunik 30 year contract for clinker and 30
plant January 2012 for Cements in September 2012 year contract for slag
commissioned Rs 238 crore for Rs 560 crore
to back the Further increased Adhunik, with a capacity of Greenfield capacity expansion of
expanded stake by 26% at a 1.5 MTPA, enjoys a 10% 2.5MTPA in Karnataka backed by
capacity price of Rs 77.16 market share in NE region ( captive Power plant expected to
crore other players are Star commission in December 2014
Calcoms capacity Cement, Topcem., Adhunik,
expansion plan was Calcom) 0.9 MTPA grinding capacity and 1
under progress It also has a 25MW Captive MTPA clinker capacity expansion in
when it was Power Plant Calcom expected to commission in
acquired Major Markets: North East December 2014
and West Bengal; lead
distance of 250 kms from OCL India expanded capacity from
Guwahati the main market 5.4 MTPA to 6.8 MTPA in March 2014
Source: Dalmia Bharat, Ventura Research
Organic expansions and stake acquisitions have catapulted position
80.0
70.0
70.0
60.0
50.0
40.0 35.0 34.0
30.0 24.1
21.0
20.0 15.5
10.0
0.0
Ultratech ACC Ltd. Ambuja Dalmia Shree India
Cement Cements Bharat Cement Cements
Ltd. Ltd. Ltd. Ltd.
FY16E capacity ( in mtpa)
Source: Ventura Research
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Capacity expansion to fuel revenue growth
Dalmia Bharat is in the process of expanding its capacity from 17.2 MTPA in FY13 to
24.1 MTPA by December 2014. The expansion details are as follows:
Capacity expansion details
Under Expected Capex ( in Rs

Details ( in MTPA) Existing
Expansion Commissioning Crore)
FY14 Capacity 17.2
Organic expansion
Karnataka, Belgaum ( Dalmia Cement) 0.0 2.5 Dec-14 1340
Assam, Lanka (Calcom) 1.3 0.9 Dec-14 577
Assam, Umrangshu (Calcom- Clinker Capacity) 0.3 1.0 Dec-14
West Bengal, Medinipur (OCL India) 0 1.4 Mar-14 500
Total capacity 4.8
Inorganic expansion
Acquired 74% stake in Bokaro Cements 2.1 Mar-14 690
Total expansion 6.9

FY15 Capacity 24.1
The capex has been funded in debt-equity ratio of 2:1. The company is also
increasing its clinker capacity at Calcom from 0.3 MTPA to 1.3 MTPA to support the
expansion in grinding capacity. With the expanded capacity and the improving
demand prospects given the anticipated revival in the investment cycle, we expect
Dalmia Bharat to report healthy revenue growth in FY15-FY16.
Dalmia Bharat Revenue break-down
Cement FY11 FY12 FY13 FY14 FY15E FY16E

Volumes ( in MTPA) 4.6 5.4 6.0 6.7 8.0 10.6
% growth 17.4% 11.3% 11.1% 20.0% 32.5%
Average Realisation per tonne 3938.7 4626.8 4905.6 4628.4 5114.8 5353.0
% growth 17.5% 6.0% -5.6% 10.5% 4.7%
Revenues ( in Rs Crore) 1811.8 2498.5 2948.2 3091.8 4099.5 5683.2
% growth 37.9% 18.0% 4.9% 32.6% 38.6%
We expect cement revenues to clock a 2 year CAGR of 36% driven by 26% growth
in cement volumes. Cement realisations have already witnessed a spike of 10%-
20% across regions since June 2014 and we expect the uptrend to continue through
FY16 (8% CAGR over FY15-FY16E). We expect aggregate capacity utilizations of
46% and 61% in FY15 and FY16 respectively from 56% in FY14. The drop in FY15
utilization levels is on account of the expanded capacity coming on-stream in
December 2014.
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We expect utilizations in the southern based plants i.e. in Ariyalur,
Dalmiapuram and Kadapa to increase to 65-70% levels in FY15-16
from ~55% levels in FY14. While the surplus situation is expected to
persist in the south; demand is expected to pick-up gradually. The
resolution of the Telangana issue is a positive.
We have assumed utilsations levels of 5% and 35% in FY15 and
FY16 respectively for the new capacity of 2.5 MTPA to be
commissioned in Karnataka in December 2014. A typical greenfield
plant in a new market takes about 2-3 years to reach 65% utilization
levels depending on the market conditions.
We expect utilsation levels in Adhunik Cements (Meghalaya) to
improve to 55% and 70% in FY15 and FY16 respectively from 40%-
45% in FY14. The increased thrust of the new government towards
the development of North East India is a big boost.
Calcom was operating at low utilization levels due to the absence of
clinker capacity. With the expansion in clinker capacity coupled with
favorable demand prospects, we expect utilizations to ramp up
gradually. We have assumed 40% utilization levels in FY16, from
~20% in FY14.
Bokaro Cement is an operational facility operating at ~70%
utilizations levels. We have assumed similar utilization levels going
forward.
Moving to lucrative East and North eastern markets

From a pre-dominantly Southern India presence, Dalmia Bharat has successfully
diversified its presence in the lucrative east and north eastern regions through stake
acquisitions in OCL India (Odisha), Adhunik Cements (Meghalaya) and Calcom
Cements (Assam). The recent greenfield capacity expansion in Belgaum, Karnataka
provides access to South Maharashtra markets as well.
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Diversified Geographic Presence
Calcom, Lanka, Assam, Grinding capacity 1.3 MTPA;

2.2 MTPA by November 2014
Calcom, Umrangshu, Assam,

Adhunik Cements, Meghalaya,
Clinker capacity 0.3 MTPA; 1.3
Grinding capacity 1.5 MTPA
MTPA by November 2014
Bokaro Cement, Jharkhand, Grinding capacity 2.1MTPA
OCL India, Rajgangpur, Odisha, Grinding capacity 4 MTPA
OCL India, Kapilas, Odisha, Grinding capacity 1.4 MTPA
OCL India,, Medinipur, West Bengal, Grinding capacity 1.4 MTPA
Belgaum , Karnataka, Grinding Capacity 2.5

MTPA by November 2014
Kadapa, AP Grinding capacity 2.5 MTPA
Ariyalur, Tamil Nadu, Grinding capacity 2.5 MTPA
Historically, the Southern markets

Dalmiapuram , Tamil Nadu, Grinding capacity 4 MTPA
Dalmia Bharats revenue proportion from the South has declined from 100% in FY11
to 79% in FY14. With healthy demand growth expected in the East and North East,
acquisition of Bokaro Cements and capacity expansion in Calcom, the revenue
proportion from South is further expected to reduce to ~60% in FY16.
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Dependence on Southern markets gradually reducing
100%
90%
80%
70%
60%
50% 100% 100%
40% 85%
76% 70%
30% 62%
20%
10%
0%
FY11 FY12 FY13 FY14 FY15E FY16E
South Assam Jharkhand Meghalaya
Macro factors turning favourable

With a pro-growth government at the helm, the prospects of the cement industry are
expected to improve in the coming 2-3 years.
The Finance Minister, in the recently concluded Union Budget, has
allotted `53,706 crore for the development of the North Eastern region; of
which `37,880 crore is towards planned investment in highways and
roads.
Situation in South is expected to improve with the resolution of the
Telangana issue and revival of investment cycle
Cement prices in the south have witnessed a spike of 10-20% since June
2014, which will help lessen the price disparity in South India.
With an expanded capacity and diversified presence, Dalmia Bharat is well
positioned to benefit from the revival in the industry.
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Cement Industry prospects to improve
Pan India utilizations expected to improve Cement prices increase in May-June 2014
390
450 In MTPA 80%
400 78%
350 76% 340
300 74%
72%
250 290
70%
200
68%
150 66% 240
100 64%
50 62%
0 60% 190
Sep-13
Apr-14
Jan-14
Nov-13
June 2014
Jul-13
Jun-13
Feb-14
Mar-14
Aug-13
May-14
Oct-13
Dec-13
FY11
FY12
FY15E
FY16E
FY13F
FY14F
Capacity Production Consumption Utilisation North Central East West South All India
Source: Dalmia Bharat , Ventura Research Source: Dalmia Bharat , Ventura Research
Surplus capacities to restrict utilizations to 60-

Utilisations to remain stable in North India
65% in the South
80 In MTPA 86% 250 In MTPA 80%
70 84% 70%
200
60 82% 60%
50 80% 150 50%
40 78% 40%
100 30%
30 76%
20 74% 20%
50
10 72% 10%
0 70% 0 0%
FY11 FY12 FY13P FY14F FY15E FY16E FY11 FY12 FY13P FY14F FY15E FY16E
Capacity Production Capacity Production

Consumption Capacity Utilisation (RHS) Consumption Capacity Utilisation (RHS)
Source: Dalmia Bharat , Ventura Research Source: Dalmia Bharat , Ventura Research
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Utilizations to remain stable in cement deficit Utilizations could pick up in the deficit Eastern
Central India Region
60 88% 70 In MTPA 90%
In MTPA
60 88%
50 87% 86%
50
40 86% 84%
40 82%
30 85% 80%
30
20 84% 78%
20
76%
10 83% 10 74%
0 82% 0 72%
FY11 FY12 FY13P FY14F FY15E FY16E FY11 FY12 FY13P FY14F FY15E FY16E
Capacity Production Capacity Production

Consumption Capacity Utilisation (RHS) Consumption Capacity Utilisation (RHS)
Source: Dalmia Bharat , Ventura Research Source: Dalmia Bharat, Ventura Research
Utilisations to show marginal improvement in West

70 In MTPA 80%
60 79%
78%
50
77%
40 76%
30 75%
74%
20
73%
10 72%
0 71%
FY11 FY12 FY13P FY14F FY15E FY16E
Capacity Production
Consumption Capacity Utilisation (RHS)
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Operating efficiencies an added advantage
Adequate captive limestone reserves:

Around 1.4 tonnes of limestone is required in the manufacturing of 1 tonne of
cement. South India has abundant limestone reserves, which is also the reason for
surplus cement capacities in that region. Dalmia Bharat has adequate limestone
mining rights to service requirements of its plants in the South, including the
greenfield facility set up in Karnataka. Further, it has enough reserves to meet
double the existing capacities at the Calcom and Kadappa units.
OCL Indias current limestone requirements are met entirely by its Lanjiberna
Limestone and Dolomite mine having a reserve life of 27 years.
RM costs lower compared to peers

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
FY11 FY12 FY13 FY14
Dalmia Cements Madras Cements The India Cements
ACC Ambuja Ultratech

Captive Power plants meet most of the energy requirements:

Dalmia Bharat has a total power generation capacity of 97 MW, which will increase
to 124 MW by December 2014. The plant is operating at optimum utilizations and
meets Dalmias power requirements.
OCL India has a power generation capacity of 54MW which meets majority of its
power requirements.
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Power capacities across Facilities
Plant Power Capacity ( in MW)

Dalmiapuram 45
Ariyalur 27
Calcom Power purchased from grid
Kadappa Power purchased from grid
Adhunik Cement 25
Belgaum Karnataka 27
Bokaro Cements Power purchased from grid
OCL India 54

Surplus power produced at plants is sold to the grid. Dalmia Bharat has
progressively moved from high cost imported coal to the usage of lignite and pet
coke. The power plant utilizes 75% lignite sourced from Neyveli Lignite Corporation
with the remaining being imported coal. The company uses 70% pet coke for the
kiln; the remaining is imported coal.
OCL India has 40% coal linkage from Mahanadi Coal Fields, 20% is purchased at e-
auction rates and the remaining requirement is imported.
Power requirements met from captive power plants
Dalmia Cement FY11 FY12 FY13 FY14

Power Capacity ( in MW) 72 72 97 97
Power produced ( in mn KWH) 419 383 514 543
Cement produced ( in mn tonnes) 4.7 5.4 6.1 6.6
Electricity Purchased ( in mn KWH) 86 112 101 112
Electricity captively used ( in mn KWH) 265 289 319 296
Total electricity requirement ( in mn KEH) 351 401 420 408
Total required per tonne (in KWH/tonne) 75.1 74.5 68.8 61.8
Lead distance lower than industry average: Dalmia Bharats and OCL
Indias average distance to the end-markets is about 350 kms, which is lower than
the industry average of 400-450 kms.
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Freight cost lower than peers
24.0%
22.0%
20.0%
18.0%
16.0%
14.0%
12.0%
10.0%
FY11 FY12 FY13 FY14
Dalmia Cements Madras Cements The India Cements
Key Risks
Coal Costs: In the absence of coal linkages, Dalmia Bharat relies on imported coal
to meet its partial requirement in the power plant as well as kiln. Any adverse
movements in imported coal prices will impact the margins.
Concentration to South: Even as the company is diversifying its geographic

presence, South continues to be the major end-market for Dalmia. Utilisations and
realizations in the South are lower than pan India average, leading to margin
pressure for players. The situation may continue to be subdued if demand does not
pick up as anticipated.
Financial Performance
Dalmia Bharats Q1FY15 revenues de-grew 4% Y-o-Y to ` 699 crore owing to a 2%

YoY drop in volumes. The Adhunik facility was non-operational for 20 days in
Q1FY15, which in turn also impacted the operations of Calcom, which currently
relies on clinker supply from Adhunik. Realisations remained flat YoY at `4260 per
tonne in Q1FY15. Drop in sales and under-absorption of fixed costs due to plant
break-down resulted in ~800 bps drop in EBITDA margin to 8.3% in Q1FY15.
The steep drop in EBITDA margins led the company to report a net loss in Q1FY15.
The companys net loss of `54.5 crore was pruned by OCLs share of profit of `17.4
crore for the quarter. Adjusted for the minority interest, Dalmia Bharat reported a
loss of `27.3 crore at the Adj PAT level.
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Quarterly Financial Performance (` in crore)
Particulars Q1FY15 Q1FY14 FY14 FY13
Net Sales 699.4 726.29 2954.5 2790.6
Growth % -3.7 5.9
Total Expenditure 641.5 605.86 2540.7 2156.4
EBIDTA 57.86 120.43 413.9 634.2
EBDITA Margin % 8.3 16.6 14.0 22.7
Depreciation 53.6 59.5 242.2 205.9
EBIT (EX OI) 4.3 60.9 171.7 428.2
Other Income 23.2 48.4 120.5 76.9
EBIT 27.5 109.3 292.2 505.2
Margin % 3.9 15.0 9.9 18.1
Interest 81.4 79.13 315.1 231.4
Exceptional items 0.0 0.0 0.0 0.0
PBT -53.9 30.1 -22.9 273.8
Margin % -7.7 4.1 -0.8 9.8
Provision for Tax 0.64 18.16 64.6 133.6
PAT -54.5 12.0 -87.5 140.2
Share of Profit in Associate 17.4 19.2 48.8 72.3
Less:Miniority Interest -9.8 -4.0 -30.2 15.4
Adjusted PAT -27.3 35.2 -8.6 197.1
PAT Margin (%) -7.8 1.6 -3.0 5.0
Financial Outlook
We expect Dalmia Bharats revenues to grow at a 2 year CAGR of 36% to `5428

crore driven by 26% growth in cement volumes and 8% realization growth. The
volume growth is due to:
Commissioning of expanded capacities in December 2014
Acquisition of Bokaro Cements which will get consolidated in the companys
financials from H2FY15 and,
Improvement in utilization levels of the existing facilities
Cement sales will continue to contribute over 90% of revenues.
Dalmia Bharats EBITDA margin dropped ~900 bps to 14% in FY14. The cement
industry went through a rough patch in FY14, with majority of the players reporting a
drop in operational performance. Dalmia Bharats operational performance turned
weak in FY14 as realizations dropped and input costs continued to rise.
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EBITDA margin drops in FY14 PAT margins under pressure in FY14
28.0% 20.0%
26.0% 15.0%
24.0%
22.0% 10.0%
20.0% 5.0%
18.0%
16.0% 0.0%
FY11 FY12 FY13 FY14
14.0%
-5.0%
12.0%
10.0% -10.0%
FY11 FY12 FY13 FY14 Dalmia Cements Madras Cements The India Cements
Dalmia Cements Madras Cements The India Cements ACC Ambuja Ultratech
Source: Dalmia Bharat , Ventura Research Source: Dalmia Bharat, Ventura Research
With the improvement in external environment, we expect operational performance

of cement players to stabilize in FY15 and turn healthy in FY16. Accordingly, we
expect EBITDA margins to expand to ~17% in FY15 and revert to its four year
historical average of 21% in FY16E. We expect Dalmia Bharat to report a net profit
(after considering the share of profit from OCL India and minority interest) of Rs 78.2
crore in FY15 and `381 crore in FY16 from a loss of `8.4 crore in FY14. We expect
the company to report a PAT margin of 7% and an EPS of `46.9 in FY16.
OCLs share of profit is expected to grow from `48.7 crore in FY14 to `140.8 crore in
FY16 driven by healthy revenue growth with capacity expansion and improving
demand outlook. OCLs revenue is expected to grow at a 2 year CAGR of 26% to Rs
3067 crore, while PAT is expected to grow at a 2 year CAGR of 65% to Rs 292
crore.
Revenues to grow; Margins to improve EPS and Return ratios to improve
Rs.Crore 50 in Rs 1200%
6000 30%
5000 25% 40 1000%

20%
4000 800%
30
15%
3000 600%
10% 20
2000 400%
5%
10
1000 0% 200%
0 -5% 0 0%
FY12
FY13
FY14
FY15E
FY16E
FY12
FY13
FY14
FY15
FY16
-10 -200%
Revenues PAT margin (RHS) EBITDA margin (RHS)
EPS RoE (RHS) RoCE (RHS)
Source: Dalmia Bharat, Ventura Research Source: Dalmia Bharat, Ventura Research
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The acquisition of 74% stake in Bokaro Cements is likely to add `220 crore worth of
debt in the books of Dalmia Bharat. With the repayment of the debt raised for the
expansion as well as from the stake acquisition three years away, the debt-equity
ratio of the company is likely to increase to 1.5x in FY16 from 1.3x in FY14. The
management has guided us with a peak net debt of `5182 crore at FY15 end; gross
debt of `5860 crore and cash and cash equivalent (including current investments) of
`680 crore. We have assumed a normalized net debt of `4550 crore in FY16.
Leverage increasing but at comfortable levels
3.0 in (x)
2.5
2.0
1.5
1.0
0.5
0.0
FY12 FY13 FY14 FY15E FY16E
Interest Coverage D/E
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Valuation
We initiate coverage on Dalmia Bharat as a BUY with a Price Objective of `625
representing a potential upside of ~33% over a period of 18 months. At the CMP of
`469, the stock is trading at an EV/EBITDA multiple of 7.8x FY16E and at an
EV/Tonne of cement capacity in FY16 at $62. The Price Objective is derived by the
SOTP method. The replacement cost currently is in the range of US$120-140 per
tonne.
Valuation
Dalmia Cement FY16E

Target EV/EBITDA multiple 8.0
FY16E EBITDA 1,148
EV (Rs crore) 9,180
Debt (Rs crore) 5181.7
Cash (Rs crore) 628
Less: Investment in OCL (Rs crore) 576
Market Cap (Rs crore) 4050
Dalmia Bharat's OCL stake
Stake 48%
Target EV/EBITDA 5.0
FY16 EBITDA 629
EV (Rs crore) 3146
Debt (Rs crore) 230
Cash and Cash equivalents (Rs crore) 135
Market Cap (Rs crore) 3051
Holding Company discount 30%
Adj Mkt Cap ( Rs crore) 2,136
SOTP
Dalmia Bharat Market Cap (Rs crore) 4050
OCL India Market Cap adjusted for stake (Rs
crore) 1025
Total 5076
Number of Shares (in crore) 8.1
Target price 625
CMP 469
Upside 33%
Upsides to our Price Objective
Higher than expected ramp-up in utilization of the new capacity in Karnataka

and/or in its existing facilities
Higher than anticipated realization growth
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Dalmia Bharat EV/EBITDA
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Apr-11
Apr-12
Apr-13
Apr-14
Feb-12
Jun-12
Feb-14
Jun-14
Jun-11
Feb-13
Jun-13
Aug-11
Aug-12
Aug-13
Oct-11
Oct-12
Oct-13
Dec-11
Dec-13
Dec-12
Dalmia Bharat 6x 7x 8x 9x 10x
As can be seen from the above chart, Dalmia Bharats EV/EBITDA multiple has
witnessed a significant expansion in the past few months. Dalmia Bharat has traded
at an average EV/EBITDA multiple of 6.3x since 2011. We have assigned a multiple
of 8x, higher than historical average but still lower than the current trading range.
Ultratech Cement, Indias largest cement manufacturer has witnessed re-rating of
the stock as and when the company has expanded capacities through the organic
and inorganic routes. In our opinion, Dalmia Bharat too warrants a re-rating of the
EV/EBITDA multiple to 8x, ~25% higher than its historical average.
Ultratech Cement EV/EBITDA trend

Clinker capacity
addition; cement Grinding unit of 1.6 MTPA
capacity additions of comissioned in Orrisa;
3.1 MTPA in acquired 4.8MTPA unit in
18 Karantaka and Gujarat; total capacity 62
Maharashtra MTPA
Acquired Star
16 Cement; capacity
increased to 52 MT
14 Cement capacity
in 2010-11
expanded from 30.04
12 MnT in 2004 to 48.9
MnT in 2008-2010
10
8
6
4
2
0
Apr-06 Apr-08 Apr-10 Apr-12 Apr-14
EV/EBITDA multiple
th
Ultratech EV/EBITDA multiple expansion
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
Apr-06 Apr-08 Apr-10 Apr-12 Apr-14
EV 6X 7.75X 9.5X 11.25X 13X
EV/ Tonne Comparison
EV/Tonne of cement capacity ( in $) EV/Tonne of Cement Sales ( in $)

Name
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
OCL Ltd 68.0 68.0 49.8 42.8 110.3 110.1 79.7 60.9
Ultratech Cement Ltd. 175.8 149.9 181.3 179.7 205.6 208.1 263.1 263.2
ACC Ltd. 120.3 117.1 117.8 120.0 143.9 136.3 164.2 152.2
Ambuja Cements Ltd. 173.0 173.1 174.2 152.0 219.1 210.5 222.3 211.8
Dalmia Bharat 67.7 69.9 61.8 61.5 124.7 129.9 121.5 96.3
India Cements Ltd. 69.2 68.4 62.3 71.0 96.7 92.2 83.2 88.7
Heidelberg Cement India Ltd 54.4 70.4 79.0 58.0 112.1 103.6 99.7 66.8
th
Peer Comparison
Net EPS RONW P/E EV/EBITDA

Y/E Mar EBITDA PAT EPS
Revenue (%) (%) (x) (x)
OCL India
2014 1943.5 306.1 107.2 18.8 -32.8 9.3 15.4 7.2
2015E 2550.0 454.0 166.3 29.2 37.7 12.8 9.9 4.5
2016E 3066.8 629.3 291.9 51.3 77.1 18.6 5.7 2.8
ACC
2014 11528.4 2216.8 1386.1 74.2 27.2 18.5 19.4 15.7
2015E 11168.7 1647.8 1019.6 53.9 -27.4 13.1 26.7 15.0
2016E 12051.0 1732.2 1100.4 58.6 8.8 15.9 24.6 11.6
Ambuja Cement
2014 10110.4 2599.6 1658.0 8.3 -1.4 19.4 20.8 12.1
2015E 9303.2 1701.2 1222.9 7.7 -28.8 12.0 29.1 18.9
2016E 19533.6 3499.5 1751.4 9.6 23.9 13.3 23.5 9.2
Ultratech Cement
2014 21731.3 4000.4 2148.2 78.3 -22.9 13.0 32.1 18.3
2015E 25082.0 5023.5 2614.7 95.4 21.9 16.8 26.3 14.3
2016E 28813.4 6260.9 3429.0 125.0 31.0 16.9 20.1 11.3
India Cement
2014 5106.9 711.7 21.8 0.8 -91.5 0.7 143.3 8.7
2015E 5496.9 813.6 111.0 3.6 362.3 6.3 31.0 7.6
2016E 6168.6 1010.4 236.7 7.7 112.4 8.2 14.6 5.8
Dalmia Cement
2014 2954.5 413.9 -8.4 -1.0 -104% -0.3 -452.3 18.9
2015E 3987.0 672.6 78.2 9.6 NA 2.5 48.7 13.3
2016E 5427.6 1147.5 381.3 47.0 387% 10.8 10.0 4.4
Heidelberg Cement
2014 1389.6 123.7 -39.1 -1.7 -168.6 -3.3 28.9 19.8
2015E 1656.7 233.9 33.2 1.0 -159.9 3.2 60.6 9.6
2016E 1932.0 318.7 81.2 3.5 244.5 8.3 17.6 4.5
th
Dalmia Bharat P/E
600
500
400
300
200
100
0 Jun-11
Feb-12
Jun-12
Feb-13
Jun-13
Feb-14
Jun-14
Aug-11
Aug-12
Aug-13
Oct-11
Oct-12
Oct-13
Dec-11
Dec-12
Dec-13
Apr-11
Apr-12
Apr-13
Apr-14
-100
Dalmia Bharat 7x 8x 9x 10x 11x
Dalmia Bharat P/BV

600
500
400
300
200
100
0
Jun-11
Jun-12
Feb-13
Jun-13
Jun-14
Feb-12
Feb-14
Aug-11
Aug-13
Aug-12
Oct-11
Oct-13
Oct-12
Dec-11
Dec-12
Dec-13
Apr-12
Apr-14
Apr-11
Apr-13
Dalmia Bharat 0.5x 0.75x 1.0x 1.25x 1.5x
th
Financials and Projections
Y/E Mar, Fig in ` Cr FY 2013 FY 2014 FY 2015E FY 2016E Y/E Mar, Fig in Rs. Cr FY 2013 FY 2014 FY 2015E FY 2016E
Profit & Loss Statement Per Share Data (Rs)
Net Sales 2790.6 2954.5 3987.0 5427.6 EPS 24.3 -1.0 9.6 47.0
% Chg. 19.1 5.9 34.9 36.1 Cash EPS 53.4 48.3 68.0 99.4
Total Expenditure 2156.4 2540.7 3314.3 4280.1 DPS 2.0 2.0 2.0 2.0
% Chg. 21.5 17.8 30.5 29.1 Book Value 377.8 381.1 389.1 434.4
EBITDA 634.2 413.9 672.6 1147.5 Capital, Liquidity, Returns Ratio
EBITDA Margin % 22.7 14.0 16.9 21.1 Debt / Equity (x) 1.1 1.3 1.7 1.5
Other Income 76.9 120.5 76.2 78.6 Current Ratio (x) 1.5 1.2 0.9 1.1
Exceptional items 0.0 0.0 0.0 0.0 ROE (%) 6.4 -0.3 2.5 10.8
PBDIT 711.1 534.4 748.9 1226.2 ROCE (%) 6.7 2.4 4.5 9.1
Depreciation 205.9 242.2 296.7 354.0 Dividend Yield (%) 0.4 0.4 0.4 0.4
Interest 231.4 315.1 418.8 439.5 Valuation Ratio (x)
PBT 273.8 -22.9 33.4 432.7 P/E (x) 19.3 -452.3 48.7 10.0
Tax Provisions 133.6 64.4 35.7 149.8 P/BV (x) 1.2 1.2 1.2 1.1
Reported PAT 140.2 -87.3 -2.3 282.9 EV/Sales (x) 3.0 2.8 3.0 2.2
Minority Interest 15.4 -30.2 -0.4 42.4 EV/EBIDTA (x) 0.4 0.4 0.4 0.4
Share of profit from associates 72 48.8 80.2 140.8 Efficiency Ratio (x)
PAT 197.1 -8.4 78.2 381.3 Inventory (days) 467.9 351.8 380.0 380.0
PAT Margin (%) 7.1 -0.3 2.0 7.0 Debtors (days) 34.4 35.3 35.0 35.0
Freight cost as a % of sales 14.8 18.0 19.3 18.6 Creditors (days) 432.7 402.6 380.0 380.0
Balance Sheet Cash Flow statement

Share Capital 16.2 16.2 16.2 16.2 Profit Before Tax 273.8 -22.9 33.4 432.7
Reserves & Surplus 3051.7 3078.5 3143.3 3511.1 Depreciation & Amortisation 205.9 243.8 296.7 354.0
Minority Interest 517.4 445.7 445.3 487.7 Working Capital Changes -235.2 -88.0 -120.1 -340.2
Long-Term Provisions 27.5 34.2 39.9 54.3 Direct Taxes Paid and Others 86.9 210.8 336.2 240.5
Long-Term Borrowings 2990.0 3550.8 4125.8 4075.8 Operating Cash Flow 331.4 343.7 546.2 687.0
Other Long-Term Liabilities 374.9 257.3 197.3 197.3 Capital Expenditure -339.8 -700.0 -1162.2 -300.0
Total Liabilities 6978 7383 7968 8342 Dividend Received 36.9 20.0 76.2 78.6
Gross Block 4997.0 5244.6 7544.6 7844.6 Others -315.1 -107.8 -153.2 17.6
Less: Acc. Depreciation 741.0 985.2 1281.9 1635.8 Cash Flow from Investing -618.0 -787.8 -1239.1 -203.8
Net Block 4256.0 4259.4 6262.7 6208.8 Increase/(Decrease) in Loan Fund 574.7 842.7 1150.0 -50.0
Capital Work in Progress 550.3 1237.9 100.0 100.0 Others -16.3 -24.6 -19.0 -19.0
Goodwill on Consolidation 405 469 469 469 Interest Paid -244.5 -389.6 -418.8 -439.5
Non-Current Investments 619.5 680.0 680.0 680.0 Cash Flow from Financing 313.9 428.5 712.2 -508.5
Net Current Assets 537.3 314.1 -130.0 178.7 Net Change in Cash 27.3 -15.5 19.3 -25.4
Other Non-Current Assets 609.2 423.0 585.7 706.0 Opening Cash Balance 72.6 99.9 84.0 103.3
Total Assets 6978 7383 7968 8342 Closing Cash Balance 99.9 84.4 103.3 77.9
Ventura Securities Limited
Corporate Office: C-112/116, Bldg No. 1, Kailash Industrial Complex, Park Site, Vikhroli (W), Mumbai 400079
This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but
no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities
mentioned in their articles. Neither Ventura Securities Limited nor any of the contributors accepts any liability arising out of the above
information/articles. Reproduction in whole or in part without written permission is prohibited. This report is for private circulation.
th
Annexure Cement Manufacturing Process
Cost of Setting up a Cement Plant in India
Particulars 2010 2013

$/ton $/ton
Land and Mining rights 28 30
Plant & Machinery 55 60
Civil Works 15 19
Erection and Commissioning 9 11
Others 18 21
Captive Power Plant 15 19
Total Capital Cost 140 160
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Dalmia Bharat LTD.: '625 '469 Fy16E Ev/Ebitda 8.9X

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Dalmia Bharat Ltd.

Target Price `625 CMP `469 FY16E EV/EBITDA 8.9x

Higher than expected ramp-up in utilization of the new capacity in Belgaum,

Capacity expansion to fuel revenue growth

Moving to lucrative East and North eastern markets

Dalmia Bharat Corporate Structure

Kohlberg Kravis Dalmia Bharat Ltd.

15% 85% 100%

Dalmia Power Ltd.

Dalmia Cement Bharat Ltd. 26% 74%

DCB Power Ventures

Adhunik Calcom Bokaro

Source: Dalmia Bharat , Ventura Research

Capacity expansion and regional diversification spell favorable

FY15: Group Capacity of 24.1

Source: Dalmia Bharat, Ventura Research

Organic expansions and stake acquisitions have catapulted position

FY16E capacity ( in mtpa)

Source: Ventura Research

Capacity expansion details

Under Expected Capex ( in Rs

Total expansion 6.9

Dalmia Bharat Revenue break-down

Cement FY11 FY12 FY13 FY14 FY15E FY16E

Source: Dalmia Bharat , Ventura Research

Moving to lucrative East and North eastern markets

Calcom, Lanka, Assam, Grinding capacity 1.3 MTPA;

Calcom, Umrangshu, Assam,

Bokaro Cement, Jharkhand, Grinding capacity 2.1MTPA

OCL India, Rajgangpur, Odisha, Grinding capacity 4 MTPA

OCL India, Kapilas, Odisha, Grinding capacity 1.4 MTPA

OCL India,, Medinipur, West Bengal, Grinding capacity 1.4 MTPA

Belgaum , Karnataka, Grinding Capacity 2.5

Ariyalur, Tamil Nadu, Grinding capacity 2.5 MTPA

Historically, the Southern markets

Source: Dalmia Bharat, Ventura Research

Source: Dalmia Bharat , Ventura Research

Macro factors turning favourable

Surplus capacities to restrict utilizations to 60-

50 80% 150 50%

Capacity Production Capacity Production

Capacity Production Capacity Production

Utilisations to show marginal improvement in West

Source: Dalmia Bharat, Ventura Research

Adequate captive limestone reserves:

RM costs lower compared to peers

Dalmia Cements Madras Cements The India Cements

ACC Ambuja Ultratech

Captive Power plants meet most of the energy requirements:

Plant Power Capacity ( in MW)

Source: Dalmia Bharat , Ventura Research

Power requirements met from captive power plants

Dalmia Cement FY11 FY12 FY13 FY14

Source: Dalmia Bharat , Ventura Research

Dalmia Cements Madras Cements The India Cements

ACC Ambuja Ultratech

Source: Dalmia Bharat , Ventura Research

Concentration to South: Even as the company is diversifying its geographic

Dalmia Bharats Q1FY15 revenues de-grew 4% Y-o-Y to ` 699 crore owing to a 2%

Source: Dalmia Bharat, Ventura Research

We expect Dalmia Bharats revenues to grow at a 2 year CAGR of 36% to `5428

Cement sales will continue to contribute over 90% of revenues.