Dalmia Cement

Dalmia Cement (Bharat)’s exposure to both the cement and sugar sectors will continue to provide growth opportunities
THE current boom in the cement and sugar industry has shifted focus to players like Dalmia Cement (Bharat), which have a presence in both these sectors. The company is shortly bringing on stream additional cement capacity to the tune of 2.5 million tonnes and its capacity would reach 9 million tonnes by October 2009. This should help Dalmia Cement (Bharat) to grow its net sales aggressively in FY10 and FY 11. In the case of cement, the current boom is thanks to government-fund infrastructure projects and housing in smaller towns.

Also, Dalmia is well positioned to take advantage of domestic sugar prices currently at Rs 30 per kg levels, a jump of 51.5 % y-o-y, given a global shortage of this commodity. The stock currently trades with a P/E of 6.9 times its trailing four quarter earnings, which is lower than that of other players in sugar like Triveni Engineering and Industries, and other south-based players like India Cements.

Current capacities:

Dalmia Cement Bharat’s cement capacity is currently 6.5 million tonnes, and it includes 2.5 million tonne capacity at Kadapa, Andhra Pradesh, which was brought on stream in March 09. This capacity at Kadapa involved a capex of Rs 800 crore and the company utilised a combination of internal accruals and debt.

This additional capacity at Kadapa is expected to help Dalmia Cement’s topline to expand by nearly Rs 780 crore in FY 10, and that’s despite fears of a drought in the country, which could dampen demand for cement in the short term. During FY 09, the company’s total operational income amounted to Rs 1778.68 crore, with cement alone accounting for 72.1 % of its topline and sugar 17 %. Dalmia Cement, also has a 21.7 % stake in OCL India, whose dispatches amounted to 2.75 million tonnes during FY09. Meanwhile, in its sugar business, Dalmia Cement has a capacity of 22,500 TCD (tonnes of cane per day) at three locations in UP.

Planned Capex:

In a bid to leverage the growth opportunities Dalmia Cement is also setting up a 2.5 million tonne plant at Ariyalur, Tamil Nadu, at a cost of Rs 800 crore. This cement plant is expected to be commissioned in next two months and will ramp up Dalmia Cement’s capacity to 9 million tonnes.

The additional capacities have been funded by internal accruals and debt, and this had resulted in the company’s debt equity ratio at 1.72 the end of FY 09, as compared to 1.48 a year earlier. However, cash flows from the new capacities should help to bring down Dalmia Cement’s leverage ratio over the next few years.

Financials:

Dalmia Cement’s operating profit margin declined 200 basis points y-o-y to 28.6 % during the June 09 quarter, despite 32.2 % growth in its net sales. Pressure on its margins was due to higher input costs . Meanwhile, in its cement division, despatches rose 12.6 % y-o-y in the June 09 quarter, while realisations grew an estimated 5.4 % y-o-y to Rs 3880 per tonne ( net of excise duty). In its sugar division, its realisations grew 37 % y-o-y to Rs 23,566 per tonne in the June 09 quarter.

Valuations:

Dalmia Cement (Bharat) trades at a P/E of 6.9 times and it could be a long-term buy for investors looking to gain from growth opportunities in the cement and sugar sector.