Stock Ideas: Anand Rathi has a buy call on Dalmia Bharat, target price Rs 793

Anand Rathi has given a buy rating to Dalmia Bharat with a target price of Rs 793. The share price moved down by -0.04 per cent from its previous close of Rs 567.45. The last traded stock price is 567.20.

Hit by the lockdown in March, Dalmia’s Q4 revenue/EBITDA/PAT fell 12.6 per cent/21.7 per cent/88.6 per cent. The GUs expansion has been delayed by six months. The Rajgangpur clinker line commenced, reducing reliance on purchase of clinkers. Requisite approval has been received for the Murli acquisition.

The Rs 2.71 billion buyback has been completed and MF units are expected to be received in 6-9 months. A consumption pickup and migrant labour are key monitorables, according to the brokerage..


Investment Rationale

While the government has announced a stimulus package, the management expects a turnaround and consumption pickup will still take some time. The brokerage says the company’s plants are operating 15-20 per cent lower than in pre-Covid times.

Of the earmarked Rs 5 billion for the buyback, it has so far completed the buyback of 5.31 million shares (amounting to Rs 2.71 billion). The management said raw material prices would be steady and net debt-to-EBITDA would broadly hold at the current level of 1.34 times.

Change in Estimates

The brokerage has broadly maintained its revenue and EBITDA estimates and has raised FY22e PAT 35%. It expects volumes to slide 12 per cent in FY21 and grow 12.8 per cent in FY22, with EBITDA/ton of Rs 985 and Rs 1,051 in FY21 and FY22 against Rs 1,072 in FY20. The brokerage retains a buy, with a higher target of Rs 793 based on 8.5 times FY22e EV/EBITDA).

Risks: Rise in raw material prices, extension of the lockdown.

Financials

For the quarter ended March 31, 2020, the company reported cConsolidated sales of Rs 2483.00 crore, up 2.69 per cent from last quarter sales of Rs 2418.00 crore and down -12.63 per cent from last year's same quarter sales of Rs 2842.00 crore. The company reported net profit after tax of Rs 24.00 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 54.28 per cent stake in the company as of March 31, 2020, while FIIs held 15.29 per cent, DIIs 5.56 per cent and public and others 24.87 per cent.