Dalmia Bharat Limited Detailed Report

TRUST CREDIT INSIGHTS Dalmia Bharat Limited Detailed Report

Market statistics as on November 23, 2020 Credit Drivers: Stock price (Rs.) 1031.30 Shares O/S (Bn) 0.19  Strong and experienced promoter group: The promoters of Dalmia Bharat Market Cap (Rs. Bn) 191.57 Limited (DBL) have almost eight decades of experience in the cement P/E (x) 202.35 business. Cement capacities have been added at a strong CAGR of 23% 52 Week High(Rs.) 1049.00 52 Week Low (Rs.) 406.0 since 2004 to 26.5mtpa as on September 30, 2020. Price/Book 2.54  Strong market position with geographical diversification: The Group has a Shareholding pattern as on October 01, 2020 strong market presence in each of its markets with capacities being Promoter & Promoter Group 56.07% geographically diversified - 46% in the southern region, 39% in the eastern Domestic Institutions 3.64% region and 15% in the north-eastern region. Foreign Institutions 14.22% Others 26.07%  Capacity growth mainly via inorganic route: Over last 15 years DBL increased cement capacities mainly via inorganic route by acquiring Dalmia Bharat Limited vs. NIFTY capacities of Jaypee, OCL India, Calcom and Adhunik group. It is 140.0 undertaking 7.8mpta expansion of its cement capacity in eastern region. 120.0 DBL intends to increase its installed capacity by 40% to 37.3 mtpa by FY22 100.0

80.0 both by Brownfield and inorganic route. 60.0  Improved operating efficiencies leading to reduction in cost: Various cost 40.0 savings initiatives and better operating performance lead to consistent 20.0

0.0 improvement in EBITDA per tonne. EBITDA per tonne improved 25% YoY

to Rs 1,551 as on September 30, 2020 from FY20 level of Rs 1,239.

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20-Aug-19 20-Aug-20 20-May-20 20-May-19  Adequate Liquidity: The Dalmia group has scheduled repayments of Rs 14 NIFTY DALMIA BHARAT billion in FY21. DBL maintains a high cash and equivalent buffer of Rs 31.8 Credit Rating History # billion as on September 30, 2020, adequate to meet annual repayments.

About the Company: Founded by Jaidayal Dalmia in 1939, Dalmia Bharat Limited (DBL) is one of India’s pioneering cement companies. Headquartered in New Delhi, DBL is the listed holding company of cement business of Dalmia Bharat group. It owns 100% of Dalmia Cement (Bharat) Limited, which is the main operating company and houses the groups entire cement business. DBL is a leading cement manufacturer in India with an installed capacity of 26.5 mtpa as on September 2020. At a standalone level, DBL derives revenue from providing management services to group companies. Over last 15 years DBL increased its cement capacities mainly via inorganic route by acquiring capacities of Jaypee, OCL India, Calcom and Adhunik group. Its Short Term Rating cement operations are geographically well diversified in to South, East, and

NR NR NR A1+ North-East region. The main brands are Dalmia Cement, Dalmia DSP and Konark Cement. A1+ A1+ A1+ A1+ About the Industry: A1+ A1+ A1+ A1+ India is second largest cement market globally with installed capacity of 480mtpa after China’s ~3900mtpa and among fastest growing cement markets recording CAGR of ~7.7% (FY94-19) over last 25 years. India’s per FY 18 FY19 FY20 FY21 capita cement consumption is still lowest among the developing countries IND ICRA CRISIL at ~220kg while world average is ~580kg. Cement consumption varies

region wise because of supply and demand balance; per capita income and Financial Performance Rs. Bn level of industrial development differ in each state. India is a fragmented Particulars H1FY21 H1FY20 % chg Total Income 43.84 47.73 -8.15 market with more than 230 plants owned by ~60 players while top 4 EBITDA 13.18 11.40 15.61 groups constituting ~50% of capacity. With Indian population size of 1.35b PAT 4.20 1.88 123.40 Networth 111.59 105.61 5.66 growing at 3-4% CAGR, rising urbanization, rising trend of nuclear families Total Debt 43.07 59.50 -27.61 and earnest need of better infrastructure in rural & urban India; there is Debt/Equity (x) 0.39 0.56 - tremendous potential for growth for Indian cement players. Over last EBITDA Margins (%) 30.06 23.88 - PAT Margins (%) 9.58 3.94 - decade, capacities got added at much faster pace of 10.3% CAGR over Source: Company Reports; As per INDAS wherever FY07-18 while demand grew just 7% CAGR. However recent outbreak of applicable; # Credit rating history is for Dalmia Cement Covid-19 is expected to derail the cement consumption growth further in (Bharat) Limited, a 100% subsidiary of DBL. near term. FY21 cement demand is expected to decline 5-10% depending

upon Government’s timely success in controlling outbreak of Covid-19. Resultant migrant labour shortage can also lead to increase in cost structure for manufacturing space. However long term fundamentals remain strong as rural economy is expected to bounce back faster on the

back of good monsoon and GoI’s efforts to double farm income.

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Trust Credit Insights – Dalmia Bharat Limited

Key Credit Drivers: Strong and experienced promoter group: The promoters of Dalmia Bharat Limited Revenue and growth 120.0 20% (DBL) have almost eight decades of experience in the cement business (the cement division of Dalmia Cement (Bharat) Ltd (DCBL) was established in 1939). 100.0 15%

Over last two decades Dalmia group has kept disciplined approach towards capital 80.0 15% 10% 11% raising and efficiently deploying in cement capacities to grow faster than the 3% 60.0 5% industry. Cement capacities have been added at a CAGR of 23% since 2004 to 2% 96.7 85.8 26.5mtpa and these capacities have been well geographically diversified so that Rs. Billion 40.0 94.8 0% 74.5 regional pricing impact is sustained. Dalmia Bharat group has simplified its group 20.0 43.8-8% -5% structure also by consolidating all the cement and power assets with DCBL, to streamline decision-making, rationalise regulatory compliances, enhance cash flow 0.0 -10% FY17 FY18 FY19 FY20 H1FY21 management. Recently DBL has amalgamated all of its subsidiaries with itself and Revenue (LHS) Growth (RHS) DCBL has become 100% subsidiary of DBL. This simplified corporate structure is expected to remove redundancies and enhance operational and financial synergies. DBL has successfully migrated from family owned management Geographical diverification of company to professionally managed one over last one decade. capacity as on Sept'20 15% Strong market position with geographical diversification: The Dalmia Group has a 46% strong market presence in each of its markets with capacities being geographically diversified (46% in the southern region, 39% in the eastern region and 15% in the 39% north -eastern region) which insulates DBL from regional cement demand fluctuations. DBL is likely to incur a capex of Rs 3.5 billion-4.0 billion for upgrading the acquired assets and undertaking a brownfield expansion in eastern region and some maintenance at existing facilities. The acquisitions would help the company South East North Eastern to continue its dominant position in north eastern markets and increase DCBL’s presence in central and western India significantly. Cement capacity addition Capacity growth mainly via inorganic route: The installed capacity of the Group Strong parentage, shared brand and Board of Directors and management support 37.3 stands at 26.5 mnT as on September 30, 2020 after DBL has successfully acquired Mahindra Finance is a subsidiary of Mahindra & Mahindra Ltd. which has a 26.5 Kalyanpurleadership Cements, position inwith the an tractors operational and utility capacity vehicles of 1.1 (UV) million segment tonnes in India.per annum M&M 25 25 25 25 26.5 (mtpa)has been in Bihar, supporting at a valuation Mahindra of Financearound USD39/tonnethrough shared. DBL ‘Mahindra’ has recently brand acquired as well 3mtpa cement plant of Murli Industries at Chandrapur, Maharashtra post approval 12 12 12 as representation on Board of Directors as well as management support. The 9 9 of its resolution plan submitted to the National Company Law Tribunal. 7 Board of Directors of Mahindra Finance is headed by Mr. Dhananjay Mungale 4 4 1 Furthermore,(Non- Executive it is undertakingChairman) who 7.8mpta has vast expansion experience of its in cement corporate capacity and investment in eastern region.banking. The The increa operationsse in capacity of the utilisationcompany isare expected headed toby bringMr. Ramesh down its Iyer fixed who cost is

per tonne. DBL intends to increase its installed capacity by 40% to 37.3 MTPA by

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

the Vice-Chairman and Managing Director and has been with Mahindra Finance FY06 FY22E FY2since2 both inception by Brownfield in 1995. Heand is inorganic also member route of. Thisthe Groupexpansion Executive is likely Board to enhance of M&M the(as Group’s President market – Financial share to Services an estimated Sector) 7% which of the explores total cement synergies capacity between in the all country at that time. the businesses and formulates strategic plans. Board of MMFSL has EBITDA and PAT Margins representation from the Mahindra group by Dr. Anish Shah (Group President – ImprovedStrategy operatingat M&M) and efficiencies Mr. V S Parthasarathyleading to reduction (Group inCFO cost: and Initiatives CIO for M&M). like lower 30.1 25.4 clinker consumption, lower slag consumption through introduction of Portland 23.6 21.5 Composite Cement (PCC), reduction of power consumption, digitisation of sales 19.4 channel and efficient management of target regions among the Group companies driving logistics efficiencies. Despite the increase in fuel prices, it has been able to 9.6 maintain its logistics cost in period ending September 30, 2020. Sales volume 3.4 3.7 2.5 0.5 declined 6% YoY to 8.46mt while revenue de-grew 8% YoY to Rs44 billion in H1FY21. The utilisation has improved consistently from 61% in FY17 to 73% in FY17 FY18 FY19 FY20 H1FY21 FY20. EBITDA per tonne improved 25% YoY to Rs 1,551 in H1FY21 from Rs 1,239 EBITDA (%) PAT (%) due to improved pricing in North East market.

Organic & Inorganic expansion leading to moderate levels of debt: The debt levels Networth and gearing 120 1.00 of the company has reduced from Rs 67.32 billion as on December 31, 2018 to Rs 0.83 43.07 billion as on September 30, 2020. Debt will remain elevated on account 0.70 0.80 sizeable capex of ~Rs 40 billion to be incurred over next 18 months for the 7.8 0.55 0.56

80 0.60 mtpa cement capacity addition in the eastern region, which is proposed to be 0.39

funded in a debt: equity ratio of 70:30. Interest coverage ratio improved from 0.40 Times 3.27x as on March 31, 2019 to 4.45x as on September 30, 2020. Interest coverage Rs. Billion 40 0.20 has improved consistently on account of stronger operating performance led by improved volume growth and pricing in the industry. Gearing has reduced from 0 0.00 0.55x to 0.39x over same period. Net cash accrual to total debt has however FY17 FY18 FY19 FY20 H1FY21 reduced from 0.26x as on March 31, 2019 to 0.24x as on September 30, 2020. Networth Gearing

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Trust Credit Insights – Dalmia Bharat Limited

Vulnerability to cyclical trends: DBL’s margins are exposed to the cyclicality in the Interest Coverage cement industry as well as price trends for raw materials and other inputs. The margins of the company and of other players in the cement industry as a whole 5.02 4.45 have remained subdued on account of an increase in the prices of pet coke, 3.27 diesel and slag in FY2020. With the building of brand and reducing per tonne 2.92 fixed costs on account of vintage and improving scale of operations, the ability of 2.21 the company to absorb the resultant impacts of subdued demand/excess supply have improved.

Strong Liquidity: DBL’s financial flexibility remains strong with cash balance and FY17 FY18 FY19 FY20 H1FY21 liquid investments of Rs 31.8 billion as on September 30, 2020 while it has Int. Coverage (times) scheduled repayment of Rs 14 billion in FY21. The company also expects to realise Rs 8 billion-10 billion in outstanding government grants and incentives in Net Cash Accruals to Total Debt the next 36 months. Furthermore, it has unutilised fund-based limits of Rs 5 0.30 billion. Expected net cash accrual of over Rs15 billion per annum and surplus 0.26 0.24 liquidity should suffice to cover debt obligation over the medium term. 0.21 0.16 Z-score 2.21 Grey

Z > 2.99 - “Safe” Zones

1.81< Z > 2.99 – “Grey” Zones FY17 FY18 FY19 FY20 H1FY21 Z < 1.81 – “Distress” Zones NCATD (times)

Company Management Name Designation Name Designation Mr. Puneet Yadu Dalmia Managing Director Mr. N Gopalaswamy Non Executive Independent Mr. Gautam Dalmia Managing Director Mr. Yadu Hari Dalmia Non Executive Director Mr. Jayesh N Doshi Wholetime Director & CFO Mr. Pradip K Khaitan Non Executive Ind. Chairman Mr. Virendra Singh Jain Non Executive Independent Mr. Jai Hari Dalmia Non Executive Director Mrs. Sudha Pillai Non Executive Independent Mr. D N Davar Non Executive Director

NCD & CP Issuances over 5 years Credit spread over 6 Year G-Sec:

10.07 9.38 9.36 8.82 8.94 8.78 8.33 8.43 7.45 6.50 6.75 8 7.95 8.01 7.32 7.14 6.77 6.59 6.13 6.24 1 5.27 4.44 FY17 FY18 FY19 FY20 FY 21 4.21

(YTD)

Q1FY21 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 NCD Quantum (Rs. Bn) CP Quantum (Rs. Bn) Q4FY20 Dalmia Cement (Bharat) Ltd G-SEC Source: NSDL, Prime Database Source: Thomson Reuters; Credit spread and issuances are for Dalmia Cement (Bharat) Limited, a 100% subsidiary of DBL.

Latest Issuance:

Quantum Name Type Date Tenor Coupon (%) (Rs. Bn) DCBL (Primary) Secured October 19, 2016 5 Years 8.70 p.a. 1.5

Other Information: Auditors M/s S.S Kothari Mehta & Company, Chartered Accountants

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Trust Credit Insights – Dalmia Bharat Limited

Financials: (Consolidated as per IND AS)

Profit & Loss Statement Particulars (in Bn) FY18 FY19 FY20 Balance Sheet INCOME : Particulars (in Bn) FY18 FY19 FY20 Gross Sales 88.27 94.84 96.74 EQUITY AND LIABILITIES Net Sales 85.80 94.84 96.74 Share Capital 0.00 0.39 0.39 EXPENDITURE : Shareholder's Funds 103.35 106.39 105.61 Increase/Decrease in Stock 0.01 -1.47 0.25 Long-Term Borrowings 54.59 40.15 35.05 Raw Material Consumed 15.09 19.32 17.21 Other Non-current liabilities 16.04 16.91 16.98 Power & Fuel Cost 14.05 17.56 17.38 Total Non-Current Liabilities 70.63 57.06 52.03 Employee Cost 6.09 6.48 6.75 Current Liabilities 0.00 0.00 0.00 Other Manufacturing Expenses 5.82 6.52 6.63 Trade Payables 9.28 8.77 8.29 General and Administration Expenses 2.61 3.53 3.08 Other Current Liabilities 21.04 22.56 26.06 Selling and Distribution Expenses 17.91 20.49 20.93 Short Term Borrowings 8.63 9.08 12.46 Miscellaneous Expenses 4.01 4.04 3.68 Short Term Provisions 0.71 1.41 1.41 Less: Expenses Capitalised 0.00 0.00 0.00 Total Current Liabilities 39.66 41.82 48.22 Total Expenditure 65.59 76.47 75.91 Total Liabilities 213.34 205.38 206.11 Operating Profit (Excl OI) 20.21 18.37 20.83 ASSETS 0.00 0.00 0.00 Other Income 2.74 3.59 2.17 Non-Current Assets 0.00 0.00 0.00 Operating Profit 22.95 21.96 23.00 Net Block 140.37 135.73 125.55 Interest 6.93 5.61 4.15 Capital Work in Progress 1.73 5.01 17.02 PBDT 16.02 16.35 18.85 Other Fixed Assets 0.00 0.19 0.38 Depreciation 12.13 12.96 15.28 Non Current Investments 0.97 1.09 1.18 Profit Before Taxation & Exceptional Long Term Loans & Advances 2.51 5.27 3.82 Items 3.89 3.39 3.57 Other Non Current Assets 5.86 4.05 1.47 Profit Before Tax 3.89 3.39 3.57 Total Non-Current Assets 151.44 151.34 149.42 Provision for Tax 0.98 -0.10 1.19 Current Assets - Loans & Advances 0.00 0.00 0.00 Profit After Tax 2.91 3.49 2.38 Currents Investments 34.08 23.15 26.98 Inventories 7.79 10.32 9.74 Key Ratios Sundry Debtors 5.64 5.49 3.97 Cash and Bank 3.54 4.69 4.03 Particulars FY18 FY19 FY20 Other Current Assets 7.30 6.39 7.31 Operational & Financial Ratios Short Term Loans and Advances 3.55 4.00 4.66 Earnings Per Share (Rs) 0.00 15.79 11.49 Total Current Assets 61.90 54.04 56.69 DPS(Rs) 1.70 2.00 2.00 Miscellaneous Expenses not written Book Value (Rs) 0.00 544.87 541.03 off 0.00 0.00 0.00 Margin Ratios Total Assets 213.34 205.38 206.11 PBIDTM (%) 26.00 23.15 23.78 Total Debt (Long Term Plus Short PATM (%) 3.30 3.68 2.46 Term) 72.66 58.78 59.50 Performance Ratios

ROA (%) 1.37 1.67 1.16 ROE (%) 8.78 4.88 2.25 Cash flow Statement ROCE (%) 6.14 5.28 4.67 Particulars (in Bn) FY18 FY19 FY20 Efficiency Ratios Profit Before Tax 3.89 3.39 3.57 Receivable days 22.62 21.42 17.85 Adjustment 16.62 16.91 17.73 Inventory Days 29.59 34.85 37.84 Changes In working Capital -3.59 -1.63 2.73 Payable days 46.61 39.64 37.08 Cash Flow after changes in Working Growth Ratio Capital 16.92 18.67 24.03 Net Sales Growth(%) 15.21 10.54 2.00 Interest Paid 0.00 0.00 0.00 Core EBITDA Growth(%) 4.79 -4.31 4.74 Tax Paid -0.86 -0.24 -0.66 PAT Growth(%) 755.88 19.93 -31.81 Other Direct Expenses paid 0.00 0.00 0.00 Financial Stability Ratios Extra & Other Item 0.00 0.00 0.00 Total Debt/Equity(x) 1.98 0.55 0.56 Cash From Operating Activities 16.06 18.43 23.37 Current Ratio(x) 1.56 1.29 1.18 Cash Flow from Investing Activities 1.35 1.87 -17.60 Quick Ratio(x) 1.36 1.05 0.97 Cash from Financing Activities -15.64 -20.67 -5.91 Interest Cover(x) 1.56 1.60 1.86 Net Cash Inflow / Outflow 1.77 -0.37 -0.14 Opening Cash & Cash Equivalents 1.38 3.15 2.80 Peer Comparison as on March 31, 2020 Cash & Cash Equivalent on Amalgamation / Take over / Merger 0.00 0.02 0.00 Particulars (in Bn) Dalmia Bharat Ultratech Shree Cement Cash & Cash Equivalent of Subsidiaries Total Income 98.91 427.73 131.57 under liquidations 0.00 0.00 0.00 PAT 2.38 58.12 15.44 Net Worth 105.50 390.80 131.69 Translation adj. on reserves / op cash Debt 59.50 228.98 31.46 balances frgn subsidiaries 0.00 0.00 0.00 EBITDA margin (%) 23.25 23.22 30.66 Effect of Foreign Exchange Fluctuations 0.00 0.00 0.00 ROE (%) 2.25 17.24 13.52 Closing Cash & Cash Equivalent 3.15 2.80 2.66 ROCE (%) 4.67 11.94 15.46 Leverage (times) 0.56 0.59 0.24 Information Source: Ace Equity, Company Reports, IBEF, NSDL, Prime Database, Bloomberg, Thomson Reuters, Rating Agencies, CRISIL

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