Buy Dalmia Bharat with a target at Rs 1,130: Karvy Stock Broking

Brokerage Karvy Stock Broking is positive on Dalmia Bharat. The brokerage has increased EBITDA estimates for FY17E/18E by 6-7 per cent to factor in better margins for the cement and sugar company, led by marginal increase in realisation assumptions and lowering energy cost.

In a note to clients, the brokerage said that any improvement in utilisation rates and reduction in debt leaves a high potential for operating and financial leverage benefits.

Given there are no major capex plans over the next 2 years, EBITDA for the cement maker is expected to grow at 17 per cent CAGR during FY16-18E.

“We expect DBL’s net debt/equity to come down to 0.9x in FY18E from 1.4x in FY16. The stock trades at 5.9x FY18E EV/EBITDA and $82/t on FY18E capacity (~40% discount to replacement cost). We maintain Buy on DBL with revised target price of Rs 1,130 (based on 7x FY18E EV/EBITDA),”Karvy note said.