Centrum Broking
Dalmia Bharat (Buy)
CMP: ₹2,555.10
Target: ₹3,300
We like Dalmia Bharat (DBEL) for its leadership presence in the high growth east/north-east/south markets. Further, DBEL has kept its capital lean owing to prudent capex discipline. The company has been delivering industry leading profitability benefiting from its distribution and cost focus strategies.
As DBEL is expected to become top-3 producer over the next 3-4 years from top-5 currently, we estimate its superior profitability to sustain, leverage ratios to improve further and return ratios to strengthen.
We estimate DBEL to deliver 14 per cent/17 per cent/37 per cent consolidated sales volume/EBITDA/PAT CAGR during FY18-20E. We initiate coverage with a ‘buy’ and target price of ₹3,300/share (12x its FY20E consolidated EBITDA). Our target price implies AOCF/EV yield of 3.8 per cent (46 per cent discount to its long term yield).
Key downside risks: Delays in pricing recovery, continued spike in fuel/diesel prices and delays in ongoing expansions.