>DALMIA CEMENT (ICICI DIRECT)

■ Volume to cushion bottomline...
Dalmia Cement reported a sequential improvement in Q4FY09 as net profit increased by 87% QoQ because of an increase in the operating margin by 1170 bps. This was primarily backed by a growth of 29% QoQ in cement sales driven by 30% volume growth. Also, the recent surge in the equity markets has reduced the losses in the investment books.

■ Highlight of the quarter
Net sales grew 16.9% YoY to Rs 485.0 crore in Q4FY09 from Rs 415.0 crore in Q4FY08. The EBITDA margin has declined by 620 bps YoY due to a 29.3% increase in the total expenditure. Thus, the EBITDA remained flat YoY despite a growth in topline. The net profit has declined by 36.8% YoY to Rs 44.3 crore because of a decline in the operating margin and reported loss in other income of Rs 24 crore. However, on a QoQ basis, the net profit grew 86.7% on account of an increase in the operating margin by 1170 bps and positive other income in Q3FY08.

■ Valuations
At the CMP of Rs 137 per share, the stock is trading at 6.9x and 6.6x its FY10E and FY11E earnings, respectively. On an EV/tonne basis, it is trading at an EV/tonne of $73 and $61 its FY10E and FY11E cement capacities, respectively. We are upgrading our rating on the stock to HOLD with a price target of Rs 125 per share.

■ Higher volumes, realisation back topline growth
Dalmia Cement reported net sales of Rs 485.0 crore in Q4FY09 (up 16.9% YoY) on account of 17% and 13% YoY growth in cement and sugar sales, respectively. A 6.8% increase in sales volumes and 9.7% increase in net realisation drove cement sales. Also, the sugar sales volume and realisation increased by 10.5% and 37.7%, respectively. On a QoQ basis, net sales grew 20.0% on the back of a 29.7% increase in the cement volume and 13.3% growth in sugar realisation.

■ EBITDA soars QoQ on margin improvement
The EBITDA remained flat YoY but increased 79.2% QoQ. An improvement in operating margin by 1170 bps drove the sequential growth in EBITDA. Total expenditure has also been flat while it increased by 29.3% YoY to Rs 313.0 crore on account of higher power & fuel and freight cost.
The power & fuel cost has increased by 28.7% YoY and 20.3% QoQ to Rs 120.5 crore on account of high cost coal inventory while the freight cost has increased by 46.7% YoY and 46.2% QoQ to Rs 41.7 crore. The employee cost has increased by 70.6% YoY to Rs 18.6 crore. However, the employee cost has declined sequentially by 30%. The raw material cost declined 43.8% YoY to Rs 130.6 crore but remained flat QoQ.

To see full report: DALMIA CEMENT