Dalmia Cement Bharat Limited

Dalmia Cement (Bharat) Ltd (DCBL) an INR 19.7bn group derives its income mainly from cement and sugar. Its other businesses include power, refractories, multilayer ceramic chip capacitors and industrial alcohol. DCBL has a manufacturing capacity of 9Million tonne per annum (MnT) for cement and 22,500 Tonne Crushing per day (TCD)

for sugar. DCBL is the third largest cement player in the southern region

Investment Rationale

Capacity augmentation to 9MnT will bolster growth With just 3.5Mnt of capacity in FY08, DCBL has tripled its capacity to9MnT during the current fiscal. After the stake hike to 45.4% (from21.7%) in OCL India Ltd., DCBL Group, currently has a cementcapacity of 14.3MnT in the southern and eastern region of thecountry.

Sugar and Power Play

DCBL operates three sugar plants with a combined capacity of 22,500 TCD,.DCBL is looking to bid for 3-4 government sugar mills in Karnataka. This will enable DCBL to further consolidate its presence in the Sugar and co-gen business

Dynamic Expansion Plans

DCBL has dynamic plans to augment its cement capacity by additional10MnT over next decade. Total debt funding of INR 32.5bn for adding 10 MnT has already been tied up and equity portion of INR 12.5bn will be met through internal accruals (INR 2.5bn already put as part of equity) and dilution. DCBL expects to raise $100Mn (INR 4.62bn) by FY10E by selling (25%) stake in its subsidiary, Dalmia Cement Ventures Ltd. (DCVL). The fund raised would be used to add 5 MnT of cement capacity over next two tofour years in first phase Value unlocking from sugar and other business verticals

DCBL, also aims to form a separate entity (and list eventually) to transfer it

Sugar and Co-gen verticals and unlock value for shareholders

Valuation and Outlook

At CMP of INR 240/share, DCBL trades at 5.9x our FY12E per share earning of INR 40.5/share. With Revenue and PAT growing at CAGR of 20% and 27% respectively, over FY12E, and RoCE of15%, we set price objective of INR 290/- discounting its FY12E EPS at 7.2x (EPS for the entire business, excluding 45% stake in OCL Ltd.), BUY,for potential upside of 21%