Q4FY23 Review: Maruti Suzuki: New model success key for stock performance

27 Apr 2023 , 01:57 PM

Dalmia Bharat’s (DBL’) FY23 Ebitda was flat YoY, as 16% volume growth was offset by 15% decline in Ebitda per tonne. But we estimate FY24 Ebitda to grow by 36%, as timely capacity additions (including JP assets) should support 15-16% volume growth, while falling fuel prices would aid Ebitda/t improvement (+17-18% YoY). The stock is trading attractively at 12.7x FY24 EV/Ebitda and potential to re-rate, given strong growth trajectory. Maintain BUY.

Q4 disappoints on higher costs; FY23 Ebitda flat YoY: 

DBL’s Q4 Ebitda fell 4% YoY and 10% QoQ to Rs7.1bn – 11% below estimates. Higher power and fuel costs (RM+PF cost up 3% QoQ to Rs2180/t vs expectation of 4% decline) and no operating leverage benefits in other expenses (additional variable costs due to higher volumes) led to Ebitda miss. Strong volume growth (+13% YoY and +18% QoQ to 7.4mtpa) drove Ebitda; however was partly offset by cost inflation (Ebidta/t fell by 7-8% YoY and QoQ to Rs951). For FY23, Ebitda fell 2% YoY to Rs23.2bn –as 16% YoY volume growth (25.8mtpa) was offset by 15% decline in Ebitda/t to Rs900 (cement price increase of 4% vs. required hike of 7%). On expanded capacity of 38.6mpta (2.7mtpa or 8% added in FY23) – utilisations improved 500bps YoY to 69%.

Fuel cost moderation + strong volume growth to drive FY24 Ebitda growth: 

Sharp increase in FY23 fuel costs weighed on DBL’s Ebitda – we note power & fuel cost (incl. RM cost) were up 20% YoY or by Rs400/t to Rs2,200/t. But fuel prices have peaked in mid FY23 and are falling now. Management shared that petcoke prices averaged US$198/MT in FY23 (vs US$141/MT YoY) and now are down to US$140/MT. Thus, fuel prices would be a tailwind in FY24. Further, DBL would optimise its costs through: 1) Increasing share of blended cement (84% vs 79% YoY; higher blended cement sales in South) 2) Higher RE power share – doubled to 21% in FY23 (plans to double RE capacity to 324MW in FY24). Given strong demand momentum (pre-election spending), the company expects double-digit volume growth in FY24. Analysts of IIFL Capital Services estimate DBL FY24 Ebitda to grow by 36% YoY on 16% volume growth and 17% increase in Ebitda/t to Rs1,054.

JP acquisition to boost capacity: 

DBL has signed definite agreement to acquire JP assets (9.4mtpa + 6.7mtpa clinker for Rs57bn). of this, 2.3mtpa Super Dalla clinker unit (Rs15bn EV) is subject to arbitration outcome with UltraTech. JP units ex Super Dalla are acquired at EV of US$70/t; while including modernisation capex – the cost would increase to US$80-85/t. The company has delayed 2.5mtpa Bihar unit given JP acquisition but is on track to add balance 5.5mtpa. FY24 capacity would increase to 52mtpa.