Star performer: This stock turned Rs 10,000 into Rs 2.3 lakh in 4 years
Over the past six years, the company’s sales have grown at a CAGR of 27 per cent.
With over 2,200 per cent returns in last four years, it is probably the best and most successful growth story in India’s cement space, says brokerage Nirmal Bang Securities.
If you had just Rs 10,000 investment in this stock in November, 2013, it would have grown to over Rs 2.35 lakh today. The scrip traded at Rs 2,972 on November 8, 2017 compared with Rs 125 it had quoted on November 8, 2013.
The company has grown its capacity from just 1.2 mt in FY06 to 25 mt in FY16, placing it among the top four cement firms in the country.
The company has achieved this scale through both inorganic and organic routes. Industry watchers expect the company to report much higher volume growth and increase market share over the next few years.
Over the past six years, the company’s sales have grown at a CAGR of 27 per cent from Rs 1,745 crore in FY11 to Rs 7,394 crore in FY17. Net profit for the year ended March 31, 2017 jumped to Rs 344 crore from Rs 49.77 crore in FY11.
Dalmia Bharat boasts of significantly lower operating costs, which help it generate one of the highest Ebitda per tonne among peers, Nirmal Bang Securities said in a recent research report.
The company has reduced operating costs by 24 per cent over the past few years on higher blending, increased usage of alternate fuel and higher production from new and modern plants.
In September quarter earnings, it reported 233 per cent year-on-year rise in consolidated profit at Rs 103.69 crore against Rs 31.10 crore reported for the corresponding quarter last year.
Dalmia Bharat used low-cost inventory of pet coke and slag, which has helped it consume pet coke and slag purchased at old prices, and therefore the increased prices of pet coke and slag did not get reflected properly in Q2 numbers.
A reduction in lead distance from 295 km to 270 km has also helped the company reduce freight costs.
GST implementation and reduction in lead distance helped the firm cut freight costs during the quarter gone by. The company expects logistics cost to come down by 3-5 per cent soon.
Analysts are positive on the stock. Nirmal Bang says the stock can touch Rs 3,423 in the coming months; Motilal Oswal sees it at Rs 3,517.
The company has also improved productivity of its kiln by 9 per cent YoY and reduced power consumption by 1 per cent. Company management says if diesel prices continue at current level, they will cut raw material costs by 3-4 per cent.
These measures helped the firm control operating costs during the July-September quarter. During the quarter, Dalmia Bharat repaid loans worth Rs 180 crore. The cost of debt has come down from 8.3 per cent to 8.1 per cent.
Motilal Oswal believes net debt reduction of around Rs 750 crore and Rs 965 crore in FY17 and H1FY18 will continue into FY19 and its net debt-to-Ebitda ratio will fall below 1.5 times in FY19 from 2.8 times in FY17.
The brokerage believes operating cash flow is likely to improve strongly, led by improvement in margins on the back of its cost-efficiency programme and improvement in realisations by way of higher premium sales.
The merger of OCL India with itself will offer synergy benefits, which could further improve the company’s cash flow in FY19.
“Dalmia Bharat says cement demand in key regions like Andhra Pradesh and Telangana is likely to grow 15-18 per cent, while in Tamil Nadu a quick resolution of the sand mining problem will help increase demand. In Karnataka and Maharashtra, the company expects around 6 per cent demand growth and in north-east region 3-4 per cent,” said Nirmal Bang Securities.
There are also expectations that cement demand will rise on various government schemes such as low-cost housing, rural roads building, irrigation projects and the recently-announced Bharatmala project.
“We expect Dalmia Cement’s valuation multiple to catch up with its largecap peers, given its improving balance sheet and 43 per cent earnings growth CAGR over FY17-20,” said Motilal Oswal.