Centrum Broking

Deccan

Cements (Buy)

CMP: ₹1,089.65

Target: ₹1,470

Deccan Cements Ltd (DCL) was promoted and incorporated as a public limited company in the year 1979 by a technocrat entrepreneur MB Raju, who is also its current Executive Chairman. DCL has a very strong network of more than 1,000 cement dealers and consignment agents spread through out the length and breadth of Andhra Pradesh and Telangana and also, in the other southern States of Tamil Nadu, Karnataka and Kerala as well as the neighbouring States namely Maharashtra, Madhya Pradesh, Chattisgarh and Odisha.

DCL reported tepid earnings growth in Q1Y18 (EBITDA/PAT rose 5 per cent/1 per cent y-o-y) as high cost inflation moderated pricing gains. We continue to like DCL owing to 1) the improving demand outlook in the South; 2) DCL’s higher than peers profitability metrics, due to its unlevered balance sheet, low asset cost base ($27/MT); and 3) strong free cash outlook (no capex in the near term). Despite these, the stock is trading at cheap valuations on various parameters: 13 per cent AOCF yield, USD41/MT and 6.2x/4.4x its FY18/19 EBITDA.

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