Result Update

May 27, 2010

Rating matrix
Rating : Buy Dalmia Cement (DALCEM)
Target : Rs 246
Target Period : 12-15 months Rs 214
Potential Upside : 15%
WHAT’S CHANGED…
Annual performance
PRICE TARGET ............................................................. Changed from Rs 260 to Rs 246
FY09 FY10 FY11E FY12E
EPS (FY11E) ............................................................... Changed from Rs 22.7 to Rs 20.3
Net Sales 1753.0 2154.3 2480.1 2944.3
EBITDA 484.0 460.8 438.9 576.8
EPS (FY12E) ............................................................... Changed from Rs 39.1 to Rs 34.1
EBITDA Margin (%) 27.6 21.4 17.7 19.6 RATING................................................................................... Changed from Add to Buy
Reported PAT 158.6 181.7 164.6 276.4
Adjusted EPS (Rs) 19.6 22.4 20.3 34.1 Higher expenditure dents margin…
Valuation summary Dalmia Cement has reported a net profit of Rs 2.0 crore, lower than our
FY09 FY10E FY11E FY12E estimate of Rs 20.0 crore, on account of higher-than-expected operating
PE (x) 10.9 9.5 10.5 6.3 and interest expenditure incurred by the company. Net sales of Rs 525
Target PE (x) 12.5 10.9 12.1 7.2 crore was ahead of our estimate of Rs 490 crore on account of higher-
EV to EBITDA (x) 6.9 7.7 7.6 5.5 than-expected sugar volume and sugar realisation. The operating
EV/Tonne(US$) 88 69 64 60 margin declined by 2300 bps YoY (584 bps dip QoQ) to 12.5% as the
Price to book (x) 1.4 1.3 1.2 1.0 expenditure increased in both segments, cement as well as sugar.
RoNW (%) 13.1 13.7 11.5 17.3 Cement EBITDA per tonne declined by 71% YoY and 38% QoQ to Rs 375
RoCE (%) 12.0 9.1 7.6 10.7 per tonne while sugar EBITDA per tonne declined by 49% YoY and 34%
QoQ to Rs 4901 per tonne.
ƒ Highlights for the quarter
Stock data
Mcap Rs 1732 crore Dalmia Cement reported cement sales volumes of 1.08 MTPA that
Debt (FY10) Rs 2850 crore increased 21% YoY and 11% QoQ. The cement realisation declined
Cash & Invest(FY10) Rs 1013 crore by 18% YoY and 1% QoQ to Rs 3,201 per tonne. The sugar sales
EV Rs 3570 crore
volume declined by 16% YoY and 26% QoQ to 0.37 lakh tonnes
52 week H/L Rs 279 / 112
while the sugar realisation increased by 64% YoY and 19% QoQ to
Rs 41,662 per tonne. Cement operating margin declined by 2190
Equity cap Rs 16.19 crore
bps YoY and 695 bps QoQ to 12% as expenditure increased by 9%
Face value Rs 2
MF Holding(%)
YoY and 7% QoQ on a per tonne basis. Sugar operating margin
5.5
declined by 2607 bps YoY and 950 bps QoQ as expenditure
FII Holding(%) 4.5
increased by 133% YoY and 33% QoQ on a per tonne basis.
Price movement (Stock vs. Nifty)

300 6000
Valuation
250 5000 At the CMP of Rs 214, the stock is trading at 10.5x and 6.3x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of 7.6x
200 4000 and 5.5x FY11E and FY12E EBITDA, respectively. On an EV/tonne basis,
150 3000 its cement business is trading at $64 and $60 its FY11E and FY12E
capacities, respectively. We are valuing the cement business at $62 per
100 2000
tonne (40% discount to the replacement cost of $107 per tonne) at its
50 1000 FY12E capacity of 9 MTPA and sugar business at Rs 1.5 lakh per tonne
(50% discount to the replacement cost of Rs 3 lakh per tonne). We are
0 0
maintaining our positive view on the stock with a BUY rating and a
Apr-09

Feb-10

Apr-10
Jun-09

Aug-09

Oct-09

Dec-09

revised target price of Rs 246 per share.

DALCEM (LHS) NIFTY (RHS)
Exhibit 1: Performance Highlights
Analyst’s name Q4FY10 Q4FY10E Q4FY09 Q3FY10 YoY Gr. (%) QoQ Gr. (%)
Net Sales 524.7 489.9 485.0 519.0 8.2 1.1
Vijay Goel
EBITDA 65.4 92.5 172.0 95.0 -62.0 -31.2
vijay.goel@icicisecurities.com
EBITDA Margin (%) 12.5 18.9 35.5 18.3 2300 bps dip 584 bps dip
Depreciation 37.7 33.7 23.9 32.1 57.6 17.5
Interest 51.6 37.5 40.8 39.7 26.6 29.9
PAT 2.0 20.0 44.3 23.1 -95.4 -91.2
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

Dalmia Cement (DALCEM)

Cement Business

Net sales from the cement business increased by 9.1% QoQ to Rs 344.7
crore on account of a 10.6% QoQ increase in cement sales volume to
1.08 MTPA in Q4FY10. On a YoY basis, the net sales from the segment
has remained almost flat as the 18% YoY decline in realisation diluted the
positive impact of 20.9% YoY increase in the sales volume.
Cement EBITDA has declined by 65.5% YoY and 31.5% QoQ to Rs 40.4
crore as the EBITDA margin has dipped by 2190 bps YoY and 695 bps
QoQ to 11.7%. On a per tonne basis, the EBITDA declined by 71.4% YoY
and 38.1% QoQ to Rs 375 per tonne. This is because the expenditure has
increased by 9% YoY and 7.1% QoQ to Rs 2825 per tonne and realisation
has declined by 18.1% YoY and 1.3% QoQ to Rs 3201 per tonne.

Exhibit 2: Cement segment performance

Rs Crore Q4FY10 Q4FY09 YoY (%) Q3FY10 QoQ (%)
Net Sales 344.7 348.0 -0.9 316.0 9.1
Expenditure 304.3 231.0 31.7 257.0 18.4
EBITDA 40.4 117.0 -65.5 59.0 -31.5
EBITDA Margin (%) 11.7 33.6 2190 bps dip 18.7 695 bps dip
Source: Company, ICICIdirect.com Research

Exhibit 3: Per tonne analysis of cement segment

Rs per tonne Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10
Realisation 3906 3909 3843 3244 3201
Expenditure 2593 2515 2648 2639 2825
EBITDA 1313 1394 1195 606 375
Source: Company, ICICIdirect.com Research

Exhibit 4: Cement sales volume and cement realisation

1.10 1.08 4500

3906 3909 3843
The cement sales volume increased by 21% YoY and 10.6% 4000
1.05 3244 3201 3500
QoQ to 1.08 MTPA. However, the cement realisation
1.05
declined by 18.1% YoY and 1.3% QoQ to Rs 3,201 per tonne 1.00 3000
million tonnes

Rs per tonne
0.99 2500
0.95 0.97
2000
0.90 1500
0.89 1000
0.85
500
0.80 0
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

Cement Realisation (RHS) Cement sales volume (LHS)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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 Dalmia Cement (DALCEM)

Sugar business

Net sales from the sugar business increased by 37.8% YoY to Rs 153
crore on account of a 64.2% YoY increase in the sugar realisation to Rs
41,662 per tonne in Q4FY10. On a QoQ basis, net sales from the segment
has declined by 12.1% as the 26.1% QoQ decline in sugar sales volume
negated the impact of a 19% QoQ increase in sugar realisation.

Sugar EBITDA has declined by 57.1% YoY and 51.4% QoQ to Rs 18.0
crore as the EBITDA margin has dipped by 2607 bps YoY and 950 bps
QoQ to 11.8%. On a per tonne basis, the EBITDA declined by 49% YoY
and 34.1% QoQ to Rs 4,901 per tonne. This was because the increase in
expenditure by 133% YoY and 33.4% QoQ to Rs 36,761 per tonne diluted
the positive impact of the increase in realisation by 64.2% YoY and 19.1%
QoQ.

Exhibit 5: Sugar segment performance

Rs Crore Q4FY10 Q4FY09 YoY (%) Q3FY10 QoQ (%)
Net Sales 153.0 111.0 37.8 174.0 -12.1
Expenditure 135.0 69.0 95.7 137.0 -1.5
EBITDA 18.0 42.0 -57.1 37.0 -51.4
EBITDA Margin (%) 11.8 37.8 2607 bps dip 21.3 950 bps dip
Source: Company, ICICIdirect.com Research

Exhibit 6: Per tonne analysis of sugar segment

Rs per tonne Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10
Realisation 25376 25659 27103 34994 41662
Expenditure 15774 22133 23490 27553 36761
EBITDA 9602 3526 3614 7441 4901
Source: Company, ICICIdirect.com Research

Exhibit 7: Sugar sales volume and sugar realisation

0.55 45000
Sugar sales volumes declined by 16% YoY and 26% QoQ to 0.51 41662
0.50
0.37 lakh tonnes. However, the sugar realisation has 0.50 40000
increased by 64.2% YoY and 19.1% QoQ to Rs 41,662 per 0.44 0.44
0.45 34994 Rs per tonne
tonne
lakh tonnes

35000
0.40
27103 30000
0.35 25659 0.37
25376
0.30 25000

0.25 20000
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

Sugar Realisation (RHS) Sugar sales volume (LHS)

Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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Dalmia Cement (DALCEM)

Exhibit 8: EBITDA margin and PAT margin

40 10.9 12
35.5
The EBITDA margin dipped by 2300 bps YoY and 584 bps 35 9.5
10
QoQ to 12.5% in Q4FY10 from 35.5% in Q4FY09 and 18.3% 30 28.0
in Q3FY10. The PAT margin dipped by 870 bps YoY and 9.1 8
25
400 bps QoQ to 0.4% in Q4FY10 from 9.1% in Q4FY09 and 25.8 18.3
20 6

%
4.4% in Q3FY10
15
4.4 12.5 4
10
2
5 0.4
0 0
Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10

EBITDA Margin PAT Margin

Source: Company, ICICIdirect.com Research

Projects update
During the year, the company has commissioned two clinker units of 2.5
MTPA each at Ariyalur and Kadapa. This has increased the cement
capacity to 9 MTPA. The company has also started a trial run of the 27
MW thermal power plant at Ariyalur.
Demerger of cement, power and refractory business into DBEL (to be listed)
In March 2010, DCBL announced the demerger of its cement, power and
refractory business to DBEL, which is to be listed in six months. This will
have two subsidiaries Avnija properties and Dalmia Power, which will
control the cement and power businesses, respectively. Avnija has a
current operating capacity of 9 MTPA and is expanding it by 10 MTPA
through Dalmia Cement Ventures (DCVL) in the next three to four years. It
will also have control over listed company OCL India’s 45.4% stake. The
current capacity of OCL is 5.3 MTPA. Dalmia Power (DPL) will have 74%
control in Dalmia Power Ventures (DPVL), which has a thermal power
capacity of 72 MW. Avnija will have the balance 26% control in DPVL.

Investment of Rs 750 crore by KKR (PE firm) into Avnija

Dalmia Cement (DCBL) has raised Rs 750 crore from PE firm Kohlberg
Kravis Roberts (KKR) for its wholly owned unlisted subsidiary Dalmia
Bharat Enterprises (DBEL). The amount raised would primarily be used for
capex in the cement business. Avnija, a 100% subsidiary of DBEL (to be
listed), will have 100% control over the cement business, which has a
current operating capacity of 9 MTPA. The 10 MTPA expansion plan
under Avnija has a capex of Rs 4500 crore, which will be funded through
debt of Rs 3250 crore, Rs 750 crore of the KKR PE funding and the rest
through internal accruals. The amount raised values Avnija at Rs 3570
crore or the cement business at $89 per tonne.

Valuations
At the CMP of Rs 214, the stock is trading at 10.5x and 6.3x its FY11E and
FY12E earnings, respectively. The stock is trading at an EV/EBITDA of 7.6x
and 5.5x FY11E and FY12E EBITDA, respectively. On an EV/tonne basis,
its cement business is trading at $64 and $60 its FY11E and FY12E
capacities, respectively. We are valuing the cement business at $62 per
tonne (40% discount to the replacement cost of $107 per tonne) at its
FY12E capacity of 9 MTPA and sugar business at Rs 1.5 lakh per tonne
(50% discount to the replacement cost of Rs 3 lakh per tonne). We are
maintaining our positive view on the stock with a BUY rating and a
revised target price of Rs 246 per share.

ICICIdirect.com | Equity Research

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 Dalmia Cement (DALCEM)

ICICIdirect.com coverage universe (Cement)

ACC Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ACC CMP 830 CY08 7,308.6 62.5 13.3 8.3 25.9 32.8
MCap 15599 Target 877 CY09 8,027.2 85.5 9.7 5.6 29.4 37.5
% Upside 6% CY10E 8,100.0 60.1 13.8 7.9 17.9 24.0
CY11E 8,982.0 57.6 14.4 7.7 15.7 21.6

Ambuja Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code GUJAMB CMP 106 CY08 6,234.7 7.4 14.2 8.9 21.9 27.7
MCap 16151 Target 104 CY09 7,076.9 8.0 13.3 7.9 20.1 27.1
% Upside -2% CY10E 7,851.4 9.1 11.6 6.6 19.9 26.0
CY11E 8,348.0 8.7 12.1 6.0 16.7 22.3

UltraTech Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ULTCEM CMP 932 FY09 6,383.1 77.4 12.0 7.5 31.0 29.2
MCap 25555 Target 945 FY10E 7,054.8 87.8 10.6 6.0 26.6 28.4
% Upside 1% FY11E 15,961.8 60.2 15.5 9.2 21.6 26.7
FY12E 17,451.6 63.0 14.8 8.5 15.0 20.1

Shree Cement Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code SHRCEM CMP 1967 FY09 2,715.0 165.9 11.9 7.4 61.4 33.9
MCap 6853 Target 2295 FY10E 3,632.1 194.1 10.1 4.6 44.4 30.6
% Upside 17% FY11E 3,946.2 206.4 9.5 4.2 33.2 23.6
FY12E 4,533.5 257.2 7.6 3.8 30.7 24.1

India Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code INDCEM CMP 111 FY09 3,426.5 17.2 6.5 4.7 17.4 17.0
MCap 3410 Target 118 FY10E 3,771.3 10.6 10.5 6.1 10.4 11.4
% Upside 6% FY11E 4,008.6 5.8 19.1 8.6 5.3 6.4
FY12E 4,613.0 8.8 12.6 6.2 7.6 9.0

JK Cement Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code JKCEME CMP 187 FY09 1,496.8 21.1 8.9 6.9 17.7 17.2
MCap 1308 Target 208 FY10E 1,822.9 32.0 5.8 5.0 22.2 18.0
% Upside 11% FY11E 2,348.8 29.1 6.4 5.0 16.9 13.3
FY12E 2,573.4 34.5 5.4 4.1 17.2 15.0
JK Lakshmi Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code JKCORP CMP 62 FY09 1,224.7 14.6 4.2 3.4 24.2 16.8
MCap 759 Target 77 FY10E 1,490.5 19.7 3.1 2.1 25.8 19.8
% Upside 25% FY11E 1,304.4 7.6 8.1 3.9 8.7 9.5
FY12E 1,507.2 10.5 5.9 4.0 10.7 11.0

Dalmia Cements Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code DALCEM CMP 214 FY09 1,753.0 19.6 10.9 6.9 13.1 12.0
MCap 1732 Target 246 FY10E 2,154.3 22.4 9.5 7.7 13.7 9.1
% Upside 15% FY11E 2,480.1 20.3 10.5 7.6 11.5 7.6
FY12E 2,944.3 34.1 6.3 5.5 17.3 10.7

Orient Paper & Industries Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code ORIPAP CMP 55 FY09 1,503.2 12.0 4.6 3.8 41.3 43.1
MCap 1060 Target 64 FY10E 1,616.5 8.2 6.7 4.8 22.5 22.5
% Upside 17% FY11E 1,793.8 9.2 6.0 3.4 21.1 22.4
FY12E 2,020.1 11.2 4.9 2.4 21.5 24.2
Mangalam Cement Sales (Rs Crore) EPS (Rs) PE (x) EV/EBITDA (x) RoNW (%) RoCE (%)
Idirect Code MANCEM CMP 150 FY09 563.7 33.5 4.5 2.9 36.3 36.3
MCap 397 Target 180 FY10E 613.7 44.9 3.3 1.5 34.8 46.5
% Upside 20% FY11E 621.3 35.2 4.3 2.6 21.7 23.5
FY12E 657.7 28.3 5.3 5.2 14.9 12.7
Source: Company, ICICIdirect.com Research

ICICIdirect.com | Equity Research

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 Dalmia Cement (DALCEM)

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
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as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Securities Limited,

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MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093

research@icicidirect.com

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