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Dalmia Bharat (NS:): We maintain our BUY rating on Dalmia Bharat (DALBHARA), with an unchanged TP of INR 2,145/sh (13x its Sep-24E consolidated EBITDA). We continue to like DALBHARA for its robust volume and margin outlook along with balance sheet prudence. Dalmia reported healthy volume growth (+13% YoY). However, the margin contracted on the back of continued cost inflation and sub-par cost pass-through. Unitary EBITDA came in at INR 656 per MT (down 46/30% YoY/ QoQ). The rise in blending ratio and higher green power/fuel usage cushioned the cost inflation. The company has guided that fuel costs will cool off 10% QoQ in Q3.
Mahindra and Mahindra (NS:) Financial Services Ltd (NS:): MMFS’ adjusted earnings were ~11% ahead of our estimates due to the impressive turnaround in asset quality. The stressed pool (GS-II + GS-III) reduced further to 16.4% (Q1FY22 peak level: 34.8%), led by relentless collection and recovery efforts and improving economic activity. As per management, the differential between GNPA (IRAC norms) and GS-III (IND-AS) has reduced to INR9bn (1.2% of advances) and demands limited incremental provisioning. MMFS continued the strong business momentum with +83% YoY growth in disbursals driving 16% YoY loan growth. While asset quality and balance sheet growth outcomes were strong, MMFS witnessed further NIM compression and higher opex intensity in the backdrop of an increasing cost of funds and its three-year journey towards product/customer diversification. We remain skeptical about the company’s ability to simultaneously deliver growth, profitability, and asset quality outcomes within this time frame. We tweak our FY23/FY24E earnings estimates to factor in lower credit costs and maintain ADD with a revised SOTP-based TP of INR224 (earlier INR225), implying 1.5x Sep-24 ABVPS.
Dalmia Bharat
Healthy volume offtake; cost pressure drags margin
We maintain our BUY rating on Dalmia Bharat (DALBHARA), with an unchanged TP of INR 2,145/sh (13x its Sep-24E consolidated EBITDA). We continue to like DALBHARA for its robust volume and margin outlook along with balance sheet prudence. Dalmia reported healthy volume growth (+13% YoY). However, the margin contracted on the back of continued cost inflation and sub-par cost pass-through. Unitary EBITDA came in at INR 656 per MT (down 46/30% YoY/ QoQ). The rise in blending ratio and higher green power/fuel usage cushioned the cost inflation. The company has guided that fuel costs will cool off 10% QoQ in Q3.
Q2FY23 performance: Strong volume growth of 13% YoY (-7% QoQ) on capacity ramp-up. Utilization stood at 63% vs 66/67% YoY/QoQ. NSR fell 3% QoQ (a seasonal price decline). Opex went up 16/2% YoY/ QoQ on higher unit input costs (up INR 100/MT QoQ: higher blending and fuel prices) and other expenses. Thus, unitary EBITDA contracted 30/46% QoQ/YoY to INR 656 per MT. While consolidated revenue went up 15% YoY on healthy volume growth, EBITDA/ APAT fell 39/74% YoY on sharp cost inflation.
H1FY23: Consolidated EBITDA fell 28% YoY to INR 9.7bn driving down OCF fall of 46% to INR 4.1bn. Capex continues to gain pace, up by 55% YoY in H1FY23 (up 16% vs H2FY22) to INR 11.6bn. Gross debt went up 6% (vs Mar- 22) to INR 34bn but remains comfortable.
Capex and outlook: DALBHARA spent INR 12bn in CAPEX in H1FY23 and guided CAPEX of INR 30bn/ INR 35-40bn for FY23/FY24E, towards expansion to 49mn MT by FY24E. It plans to reach a cement capacity of 70-75mn MT by FY27E. The company is also increasing its WHRS/solar power capacities to 72/101MW by Mar-23 vs 31/32MW in Mar-22. It further plans to add 155 MW of renewables in FY24, which will increase its green power share to 36%, vs 24% currently. DALBHARA is also increasing its blended cement sales. These should aid margin rebound and also reduce its carbon footprint (already the lowest specific CO2 emission rate in the Indian cement industry). The company has guided that its fuel cost will cool off 10% QoQ in Q3FY23. We maintain our FY23/24/25E EBITDA estimates.
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