Outlook and stock returns
The CMP of the DBL is Rs 1,717.85 each. The stock’s 52-week low is Rs 1,212.50 and the 52-week high is Rs 2,259, respectively. Over the past week, the stock has returned positive 3.47% and over the past month, it has returned positive 6.3%, respectively. Over the past 3 months, it has given a positive return of 37.06%. It gave a negative return of 22.67% over one year, respectively. While in the past 3 years it has given a multibagger yield of 116.59%.
Strong revenue growth driven by volumes
DBL reported revenue growth of 28% year-on-year, helped by volume growth of 27% year-on-year, while realization was flat year-on-year. DBL commercialized a 2.9 MT Murli plant in Maharashtra (acquisition) in January 2022 and expects to stabilize over the next 1-2 quarters. Continued capacity expansion and the ramp-up of acquisitions will support future volume growth. We are factoring in revenue growth of around 15% CAGR in FY22E-24E, supported by capacity expansion and the acceleration of recent acquisitions.
Input prices started to ease, margins to improve from H2FY23
EBITDA decreased by 16% year-on-year while EBITDA margin fell to 18% from 27% year-on-year (20% quarter-on-quarter), due to the sharp increase in fuel prices. EBITDA/tonne declined to Rs. 945 from Rs. 1,431 YoY (Rs.1,035 QoQ). Per ton, the cost of energy and fuel increased by 45% year-on-year due to the sharp increase in pet coke/coal prices. Average fuel cost increased to $218/tonne (Vs $181 QoQ / $141 in FY22 / $78 in FY21) but started to decline from peak levels (currently at $190) which should benefit from T3FY23 From. To reduce costs, the company is focusing on increasing the green power mix and added 41.4 MW (5.4 MW waste heat recovery-WHR + 36 MW solar) in the first quarter of the fiscal year 23 and adds 67.9 MW (35.4 MW WHRS + 32.5 MW solar) by the end. from FY23. Total WHR/Solar capacity would be 72MW/101MW by FY23E versus 31MW/32MW in FY21. The ramp-up of new clinker capacity is also helping to reduce the cost of raw materials (cost advantage of around Rs 70-75 per ton of clinker). Expect EBITDA/tonne to decline in FY23 due to ongoing pressure on margins, but improve to ~Rs 1,140 in FY24E. Any adverse movement in cement, fuel and RM prices is the main risk.
Valuation & Outlook
DBL’s strong capacity expansion plans (~48MT by FY24E and a long-term target of ~110-130MT by FY31) while maintaining a strong balance sheet should support the upgrade. The demand outlook is positive given the GoI’s strong focus on infrastructure and housing. The stock is currently trading at 1Yr Fwd EV/EBITDA of around 12x. “We rate DBL at 11x FY24E EV/EBITDA to arrive at a revised target of Rs. 1,950 (Rs. 1,620 earlier), maintain Accumulate rating given near-term pressure on margins,” said the brokerage house.
The stock was picked up in Geojit’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.