Dear Sir/Madam,
We rate Dalmia Bharat Limited a BUY. Dalmia Bharat ltd has operations in cement and power businesses. Dalmia Bharat is the first cement manufacturing company in the country to set up an R&D lab for concrete. Founded in 1939, customer delight has always been the bottom line of Dalmia Culture. Dalmia Bharat achieves customer delight by constantly improving and manufacturing the best quality cement products. The company has cement manufacturing plants in southern states of Tamil Nadu (Dalmiapuram & Ariyalur) and Andhra Pradesh (Kadapa), with a capacity of 9 million tonnes per annum.
We followed comparable valuation, Enterprise Value-to-EBIDTA (EV/EBIDTA) methodology, to value Dalmia Bharat ltd. The three year average peer group EV / EBIDTA stood at 8.07x at the end of FY2013. we took average of UltraTech Cement, ACC Ltd, Ambuja Cement, Ramco Cements, India Cements, Shree Cement, JK Lakshmi Cement, JK Cement and Dalmia Bharat ltd historical EV / EBIDTA to progress towards our target multiple.
In last three years, while Dalmia Bharat ltd traded at average EV / EBIDTA multiple of 8.94, UltraTech Cement at 12.01x, Acc Ltd at 10.02x, Ambuja Cement at 13.66x, Ramco Cements at 6.79x , India Cements at 8.08x, Shree cement at 3.58x, JK Lakshmi Cement at 5.37x and Jk Cement at 7.18x. We assigned an EV / EBIDTA multiple of 7x for the stock. Assigning this multiple for FY2016E EBIDTA of INR887crore, we arrived at a target price of INR304 for the stock. This represents an absolute upside of 26% from the current levels of INR241.
Regards,
Team Microsec Research
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