25 March 2014
Update | Sector: Cement
Acquires JPA’s Bokaro grinding unit at ~USD90/ton
Strengthens its presence in East, but net debt:EBITDA rise to ~4.6x FY16
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Financial Snapshot (INR Million)
2014E 2015E 2016E
27,855 41,459 49,557
Adj EPS (INR)
2,904 5,859 8,996
Acquires JPA’s 74% stake in 2.1mt grinding unit producing slag cement at Bokaro,
with 30 year supply arrangement for clinker and slag, for EV of USD90/ton and
cash out flow of ~INR6.9b.
Favorable market mix and efficient operations drives superior profitability, with
EBITDA/ton of ~INR1,450/INR985 in FY13/9MFY14.
Good strategic fit for DBEL as it will strengthen its presence in East and drive
synergies in form of a) brand premium of ~INR200/ton for OCL vis-à-vis Jaypee and
b) logistic optimization through cement swap driving estimated savings of
Deal to be PAT accretive from FY16, with EPS contribution of ~INR3.8. However,
DBEL’s gearing increases further with net-debt (on pro-rata basis) estimated to
increase to ~INR42b/INR40b in FY15/FY16, implying net debt:equity of 7x/4.6x.
The stock trades at 9.8x/6.5x FY15/FY16 EV/EBITDA and USD58/56 EV/Ton.
Maintain Buy with TP of ~INR319 (SOTP).
The deal: 74% stake in 2.1mt grinding unit at Bokaro for ~USD90/ton
Shareholding pattern (%)
Dec-13 Sep-13 Dec-12
Stock Performance (1-year)
Sensex - Rebased
Dalmia Cement Bharat Ltd (DCBL), a 85% owned SPV of DBEL, has entered
into agreement with JPA to acquire its 74% stake in Bokaro Jaypee Cement
Limited (BoJCL), a joint venture between JPA (74% stake) and SAIL, at EV of
~INR11.5b (net debt of ~INR2.2b). This JV has operational 2.1mt grinding unit
at Bokaro, producing slag cement and was set-up with investment of
Implied valuation for the deal is ~USD90/ton. The cash outflow for DBEL will
be ~INR6.9b for acquiring JPA’s 74% stake and would be funded through
debt and cash on books.
It has a 30-year long term clinker supply arrangement with JPA and 30-year
slag supply arrangement with SAIL.
With this acquisition, DBELs current installed cement capacity under control
will reach 20mt (~13.2mt on economic interest basis), and will go to ~24mt
on fully expanded basis by 2HFY15 (~16.5mt on economic interest basis).
Very efficient asset in attractive eastern market…
Bokaro plant produces slag cement, with very low cost of slag from SAIL (at
~INR 450/ton v/s OCL’s cost of ~INR1,300/ton). This plant will continue to
source clinker from JPA’s plant in Satna at a pre-determined price.
Being in supply deficient market of East India, this plant enjoys good market
mix and profitability. It caters to markets of West Bengal, Bihar and
This plant earned EBITDA/ton of ~INR1,450/INR985 in FY13/9MFY14.
(Jinesh@MotilalOswal.com); +91 22 3982 5416
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Investors are advised to refer through disclosures made at the end of the Research Report.