Dalmia Bharat
BSE SENSEX
24,455
S&P CNX
7,438
15 January 2016
Update
| Sector:
Cement
CMP: INR767
TP: INR1,015 (+32%)
Buy
Structure simplified; KKR to have a holding in Parent
Exit valuation in line with expectations
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)/(USD b)
Avg Val ( INR m)
Free float (%)
DBEL IN
81.3
885/408
3/41/76
62.3/0.9
3.93.9
37.237.2
DBEL Board approved mechanism for KKR exit in an equity plus cash deal.
Exit value (INR12.2b) in line; with partial exit, KKR to hold 8.5% in “Parent”.
Simplifying the structure should enhance investors comfort. Maintain Buy
Structure simplified; KKR to have a holding in Parent
Financials Snapshot (INR b)
Y/E Mar
2015
2016E
Net Sales
33.7
61.2
EBITDA
4.5
12.5
PAT
0.0
1.5
EPS (INR)
1.1
16.9
Gr. (%)
-209.2
1,393.5
BV/Sh (INR)
378.1
431.0
RoE (%)
0.3
4.3
RoCE (%)
4.5
8.7
P/E (x)
681.8
45.7
P/BV (x)
EV/EBITDA (x)
EV/Ton (USD)
2.0
28.8
76
1.8
11.2
89
2017E
72.0
15.5
3.7
42.1
149.4
470.7
Exit valuation in line; lock in of 1 year for KKR’s full exit
9.3
While KKR’s exit was anticipated via reverse merger of DCBL and DBEL, we
find the present form of transaction a combination of management efforts
10.8
to balance out gearing and long-term potential of the business.
18.3
1.6
The transaction values 15% stake of KKR in DCBL at INR12.2b (in line with
8.9
87
Dalmia Bharat (DBEL), in its board meeting held on January 15, 2016,
approved the acquisition of 15% stake of KKR in Dalmia Cement Bharat
Limited (DCBL)—which is ~85% subsidiary of the listed entity DBEL. KKR
invested ~INR5b in DCBL in May 2010 for ~15% stake.
The acquisition will be through a mix of equity and cash where (a) DBEL will
issue 7.5m share on preferential basis (8.5% of DBEL’s new equity base) at
INR825/share and (b) will pay INR6b of cash to KKR (DBEL will raise debt of
INR3b and pay the rest from internal accruals).
This is clearly a strong step forward toward simplifying the group structure
with partial exit of KKR and shifting the holding structure from step down
subsidiary (DCBL) to parent (DBEL).
Estimate change
TP change
Rating change
our assigned value), implying EV/ton of USD98-100 (16-17% IRR for KKR).
Management guided for another 45-60days for statutory approvals for deal
conclusion and 1 year lock-in for KKR’s 8.5% stake.
Net debt of the company will rise to INR66b (net debt: EBITDA of 5.5x and
net debt: Equity of 1.7x v/s 5.0x/1.8x earlier. Post the transaction,
our target price remains unchanged (<1% cut) at INR1,015/share.
Leverage play already on, structure simplification to aid comfort
KKR’s exit mechanism has been a long-pending worry for investors. We
expect the proposed mechanism and subsequent simplification of
corporate structure to aid comfort. The acquisition of balance 24% stake in
Calcom (call option for 2 years) and consolidation of other subsidiaries
(MMDR Act needs to be eased off) could be the final leg of implication.
DBEL is poised to witness benefits of operating and financial leverage, with
(a) fourth largest cement capacity (and high utilization levers), (b) balanced
market mix (45% each in south and east and 10% in Northeast), (c) ongoing
cost tailwinds and (d) visibility of de-leveraging.
The stock trades at 6.1x FY18E EV/EBITDA and USD80/ton on effective
capacity of 21.9mt. We value DBEL at USD95/ton (implied EV/EBITDA of
7.3x FY18E) at INR1,015/share. Prudent capital allocation, fast asset
sweating and de-leveraging would be key triggers ahead.
Sandipan Pal
(Sandipan.Pal@MotilalOswal.com); +91 22 3982 5436
Aashumi Mehta
(aashumi.mehta@motilaloswal.com);
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P

Dalmia Bharat
Operating metrics
Current structure
Proposed Structure
Exhibit 1: Total and effective capacity
Capacity (mt)
DBEL's Stake (%)
DCBL
100
OCL
76.6
Adhunik
100.0
Calcom
76.0
Bokaro
100.0
Total Capacity under control
Capacity based on Eco. Interest
FY12
9.0
5.4
FY13
9.0
5.4
0.8
0.4
15.5
14.2
FY14
9.0
5.4
1.5
1.3
2.1
17.1
15.6
FY15
11.5
6.8
1.5
2.1
2.1
24.0
21.9
FY16E
11.5
6.75
1.5
2.1
2.1
24.0
21.9
FY17E
FY18E
11.5
11.5
6.8
6.8
1.5
1.5
2.1
2.1
2.1
2.1
24.0
24.0
21.9
21.9
Source: Company, MOSL
14.4
13.1
Exhibit 2: Total and effective EBITDA
EBITDA (INR m)
DCBL
OCL
Adhunik
Calcom
Bokaro
Total EBITDA
EBITDA based on Eco. Interest
EBITDA/ton
Stake (%)
100
76.6
100.0
76.0
100.0
FY12
5,556
1,955
FY13
6,255
4,081
207
44
10,588
9,623
1,126
FY14
2,687
2,840
554
-111
5,970
5,332
577
FY15
1,054
3,275
212
-218
223
4,546
3,832
395
FY16E
7,057
3,620
485
83
1,224
12,468
11,601
1,033
FY17E
8,433
4,252
762
573
1,468
15,489
14,356
FY18E
11,049
5,794
1,025
968
1,886
20,722
19,133
7,511
7,053
902
1,141
1,386
Source: Company, MOSL
Exhibit 3: Total and effective debt
Net Debt (INR m)
DCBL
OCL
Adhunik
Calcom
Bokaro
Total Net Debt
Net Debt based on Eco. Interest
Net Debt:EBITDA
Net Debt:Equity
Stake (%)
100
76.6
100.0
76.0
FY13
18,886
3,886
5,250
5,000
33,022
30,913
3.2
0.9
FY14
26,263
4,043
5,116
5,000
40,423
38,277
7.2
1.2
FY15
46,094
1,946
5,416
8,000
2,230
63,686
61,311
16.0
2.1
FY16E
49,945
223
5,473
8,000
2,230
65,872
63,899
5.5
1.7
FY17E
48,301
-1,880
5,258
8,000
2,230
61,910
60,430
4.2
FY18E
46,886
-5,122
5,067
7,832
1,133
55,796
55,115
2.9
1.5
1.1
Source: Company, MOSL
15 January 2016
2

Dalmia Bharat
Exhibit 4: Sum of the Parts valuations
INR m
DCBL
OCL
Valuation method
EV/Ton
EV/Ton
EV/Ton
EV/Ton
EV/Ton
Multiple (x)
FY14
FY15
FY16E
100
60,100
76,794
76,794
90
24,629
31,075
31,075
90
9,015
9,015
9,015
90
5,755
9,683
9,683
90
12,621
12,621
91,155
99,499
139,188
139,188
25,410
25,898
42,169
61,899
65,745
73,601
97,019
77,289
741
830
1,094
871
FY18E
76,794
31,075
9,015
9,683
12,621
139,188
49,115
90,073
1,015
31.9
95
7.3
Source: Company, MOSL
Adhunik
Calcom
Bokaro
Total EV
Less: Pro-rata Net Debt (adj for CWIP)
Total Equity Value
Fair value (INR/share)
Upside (%)
Implied EV/Ton (on pro-rata capacity)
Implied EV/EBITDA (on pro-rata basis)
Exhibit 5: Operating matrix
Capacity (mt)
Volume (mt)
Utilization (%)
Growth (%)
Realization (INR/ton)
Growth (%)
EBITDA (INR b)
South (INR b)
OCL (INR b)
North East & Bokaro (INR b)
FY10
9
6
68
29
5,745
4.6
FY11
9
7
80
13
4,244
-26
3.6
0.1
0.1
0.3
FY12
10
8
86
16
4,345
2
7.1
5.6
1.5
0.0
FY13
14
10
69
17
4,643
7
9.6
6.3
3.1
0.2
FY14
16
11
69
9
4,289
-8
5.3
2.7
2.2
0.5
FY15
22
10
44
-9
4,798
12
3.8
1.1
2.5
0.3
FY16E
22
11
51
16
4,865
1
11.6
7.1
2.8
1.8
FY17E
22
13
58
12
5,091
5
14.4
8.4
3.3
2.7
FY18E
22
14
63
10
5,484
8
19.1
11.0
4.4
3.6
EBITDA/ton (INR)
Growth (%)
margin (%)
Consol OCF (INR b)
Capex (INR b)
Interest (INR b)
FCF(INR b)
Consol net debt (INR b)
Net DER (x)
PAT (INR b)
ROE(%)
ROCE(%)
1,126
21
2
-5
-2
-4
21.3
1.5
1.3
3
9
786
-30
21
6
0
-2
4
9.8
0.4
0.1
2
5
902
15
24
4
-6
-2
-3
14.2
0.5
1.7
6
10
1,126
25
23
3
-16
-2
-15
29.1
0.9
2.0
7
9
577
-49
11
5
-10
-2
-7
36.4
1.2
-0.1
0
4
395
-31
14
13
-46
-4
-37
63.7
2.1
0.1
0
4
1,033
161
20
11
-6
-7
-2
65.9
1.7
1.5
4
9
1,141
10
22
17
-6
-7
4
61.9
1.5
3.7
9
11
1,386
22
24
21
-8
-7
6
55.8
1.1
7.4
16
15
Source: Company, MOSL
15 January 2016
3

Dalmia Bharat
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2011
17,459
-19.0
3,648
20.9
1,753
1,895
1,724
543
0
714
611
85.5
-395
498
498
-92.1
2012
23,422
33.5
5,674
23.8
1,817
3,857
1,513
756
-395
2,704
1,229
45.4
185
1,435
1,435
1,538.8
2013
27,906
19.8
6,342
22.7
2,059
4,282
2,314
769
0
2,738
1,336
48.8
154
1,971
1,971
16.5
2014
28,670
2.7
3,263
11.4
2,422
842
3,151
2,081
0
-229
644
-281.5
-302
-84
-84
-104.3
2015
33,662
17.4
4,546
13.5
2,716
1,830
4,344
2,413
-61
-162
469
-288.7
-176
30
30
-209.2
2016E
61,156
81.7
12,468
20.4
4,564
7,904
7,369
2,350
0
2,885
1,154
40.0
235
1,496
1,496
1,531.4
2017E
71,984
17.7
15,489
21.5
5,003
10,485
7,013
2,350
0
5,822
1,747
30.0
345
3,731
3,731
149.4
(INR Million)
2018E
85,204
18.4
20,722
24.3
5,239
15,483
6,590
2,700
0
11,592
3,478
30.0
712
7,403
7,403
98.4
Change (%)
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2011
162
27,615
27,777
18,890
531
51,284
37,765
1,846
35,919
1,167
6,592
11,571
2,976
1,008
4,543
3,043
3,965
3,774
191
7,606
51,284
2012
162
28,743
28,905
19,127
927
53,231
37,987
3,659
34,328
1,165
11,935
8,844
2,615
1,354
664
4,211
3,042
2,726
316
5,802
53,231
2013
162
30,517
30,679
35,744
1,563
73,167
49,979
7,410
42,569
5,503
11,804
20,191
3,520
2,572
999
13,100
6,899
6,241
658
13,292
73,167
2014
162
30,785
30,947
42,760
1,865
80,036
52,446
9,852
42,594
12,379
12,336
20,250
3,311
2,843
844
13,252
7,523
6,874
649
12,727
80,036
2015
162
30,539
30,702
84,797
4,279
127,254
84,123
25,890
58,233
19,142
16,905
30,147
7,293
5,253
5,281
12,320
16,816
15,833
984
13,331
127,254
2016E
177
38,053
38,231
80,797
3,391
125,693
105,266
30,454
74,811
2,000
10,905
26,244
6,271
4,536
5,096
10,341
15,661
14,677
984
10,583
125,693
(INR Million)
2017E
177
41,578
41,755
76,797
3,391
125,563
112,266
35,457
76,808
1,000
10,905
27,542
6,521
4,722
5,057
11,242
18,086
16,864
1,223
9,456
125,563
2018E
177
48,775
48,952
71,297
3,391
127,971
115,516
40,696
74,819
6,000
10,905
30,723
7,158
5,368
5,671
12,526
21,869
20,131
1,739
8,853
127,971
15 January 2016
4

Dalmia Bharat
Financials and valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)
0.3
18.7
62.2
94.2
0.4
2011
1,895
543
1,753
-2,971
4,454
5,674
-53
5,622
-499
5,122
656
157
8,475
-10,072
-1,724
-118
-3,439
2,340
2,203
4,542
0.4
18.8
41.0
68.8
0.5
2012
3,883
874
1,817
-832
-3,419
2,323
1,820
4,143
-220
3,922
-5,343
-5,563
-1,042
237
-1,513
-141
-2,459
-3,880
4,543
663
0.4
31.8
46.0
77.5
0.9
2013
5,118
936
1,847
-597
-3,452
3,852
-395
3,457
-16,330
-12,873
132
-16,198
-1,088
16,617
-2,263
-189
13,077
336
664
999
0.4
39.4
42.2
62.9
1.2
2014
1,185
928
1,946
302
3,709
8,070
-2,608
5,462
-9,343
-3,881
-533
-9,876
-213
7,016
-2,355
-190
4,258
-155
999
844
0.3
70.3
79.1
124.2
2.1
2015
4,546
2,413
2,716
469
-857
9,286
4,070
13,356
-41,767
-28,410
-4,569
-46,335
-135
42,037
-4,344
-142
37,416
4,437
844
5,281
0.5
68.0
37.4
62.2
1.7
2016E
12,468
2,350
4,564
1,154
-5,921
14,616
-3,714
10,902
-11,751
-849
6,000
-5,751
6,188
-4,000
-7,369
-155
-5,336
-185
5,281
5,096
0.6
63.0
33.1
55.7
1.5
2017E
0.7
60.0
30.7
53.6
1.1
2018E
2,700
5,239
3,478
-10,919
21,219
-58
21,161
-8,250
12,911
0
-8,250
0
-5,500
-6,590
-206
-12,296
614
5,057
5,672
2.4
5.4
5.8
9.7
6.6
8.8
-0.3
4.2
0.3
4.5
4.3
8.7
9.3
10.8
16.3
15.2
-744.3
26.7
2.0
3.2
17.7
0.3
681.8
22.3
2.0
3.4
28.8
0.2
45.7
11.3
1.8
2.2
11.2
0.2
18.3
7.8
1.6
1.8
8.9
0.3
9.2
5.4
1.4
1.4
6.1
0.3
6.1
22.9
342.1
1.3
114.3
20.3
43.2
356.0
1.5
8.4
24.3
49.6
377.8
2.0
9.6
-1.0
28.8
381.1
2.0
0.0
1.1
34.6
378.1
1.5
0.0
16.9
68.3
431.0
1.5
10.3
42.1
98.5
470.7
2.0
5.5
83.5
142.5
551.9
2.0
2.8
2011
2012
2013
2014
2015
2016E
2017E
2018E
Cash Flow Statement
Y/E Mar
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Depreciation
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Issue of Shares
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
(INR Million)
15,489
2,350
5,003
1,747
-9,735
14,853
2,327
17,180
-6,000
11,180
0
-6,000
0
-4,000
-7,013
-206
-11,219
-39
5,096
5,057
20,722
15 January 2016
5

Dalmia Bharat
Corporate profile
Company description
DBEL is a holding company (85% stake) for in Dalmia
Cement Bharat (DCBL) - a SPV owning all cement assets,
with Kohlberg Kravis Roberts (KKR) holding the balance
15%. DCBL has cement capacity of 9mtpa in Tamil Nadu
and Andhra Pradesh. DCBL also holds 45.37% stake in
OCL India (5.4mtpa capacity in Orissa), 100% stake in
Adhunik Cement (1.5mt capacity in Meghalaya) and 76%
stake in Calcom (1.3mt capacity in Assam). DBEL holds
effective stake of 96.1% in DCB Power Venture, which
has thermal power generation capacity of 72MW.
Exhibit 1: Sensex rebased
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Sep-15
Promoter
DII
FII
Others
62.8
5.3
7.9
24.1
Jun-15
62.8
5.3
7.6
24.3
Sep-14
62.8
3.6
10.7
22.9
Source: Capitaline
Exhibit 3: Top holders
Holder Name
Morgan Stanley Asia (Singapore) Pte.
Sanjeev Kapoor, Trustee, Dbel Employee
Welfare Trust
DCBL Employees Welfare Trust
Goldman Sachs India Fund Limited
Viral Amal Parikh
% Holding
3.7
2.0
1.9
1.4
1.3
Source: Capitaline
Note: FII Includes depository receipts
Exhibit 4: Top management
Name
PRADIP KUMAR KHAITAN
Jai Hari Dalmia
Yadu Hari Dalmia
Jayesh Doshi
Nidhi Bisaria
Designation
Chairman
Managing Director
Managing Director
Director & CFO
Company Secretary
Exhibit 5: Directors
Name
Gautam Dalmia
Puneet Yadu Dalmia
V S Jain
Name
N Gopalaswamy
Sudha Pillai
Source: Capitaline
*Independent
Exhibit 6: Auditors
Name
S S Kothari Mehta & Co
Type
Statutory
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
16.9
42.1
83.5
Consensus
forecast
22.6
48.9
76.7
Variation (%)
-25.4
-14.1
8.8
Source: Bloomberg
Source: Capitaline
15 January 2016
6

Dalmia Bharat
NOTES
15 January 2016
7

Dalmia Bharat
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