Management Meet Note

October 7, 2016

Deccan Cements (DECCEM)

Rating Matrix
Rating

Unrated

Target

NA

Target Period

NA

Potential Upside

NA

| 1046

Value play

Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)

FY13
499.1
64.9
7.3
10.4

FY14
390.8
56.8
5.0
7.2

FY15
438.6
65.4
19.9
28.4

FY16
579.1
114.7
45.6
65.2

FY13
101.5
12.5
3.3
3.2
4.5

FY14
147.8
14.3
3.2
2.2
4.2

FY15
37.3
12.4
3.0
8.1
8.5

FY16
16.3
7.1
2.6
15.9
16.5

Valuation Summary
P/E
EV / EBITDA
P/BV
RONW
RoCE

Stock Data
Particulars
Market Capitalization
Total Debt (FY16)
Cash (FY16)
EV
52 week H/L
Equity capital
Face value

Amount
| 742 crore
| 105 crore
| 35 crore
| 812 crore
1,109 / 450
| 7.0 Crore
| 10

Price Movement
10,000

1,200
1,000

8,000

800

6,000

600
400

4,000

200

2,000

Sep-13 Apr-14 Dec-14 Jul-15 Feb-16 Oct-16

Price (R.H.S)

Nifty (L.H.S)

Research Analyst
Rashesh Shah
rashes.shah@icicisecurities.com
Devang Bhatt
devang.bhatt@icicisecurities.com

We recently met the management of Deccan Cements (DCL) to

understand their outlook on Andhra Pradesh (AP) and Telanganas
cement demand and get an insight into the companys future plans. DCL
is a 30 year old cement brand in the south with an installed capacity of 2.3
million tonnes (MT). The company has a plant in Nalgonda (Telangana)
and sells cement in Telangana, Andhra Pradesh, Tamil Nadu, Karnataka,
Maharashtra and Odisha. DCL has been able to register healthy margin
trends mainly led by cost rationalisation through efficient use of captive
power plants, focusing more on high margin markets across the southern
region due to its limited capacity. While remaining conservative on
capacity expansion, DCL has also maintained a healthy balance sheet
(continuous decline in debt) and return ratios. DCL is trading at attractive
valuations of US$55/tonne (on 2.3 MT capacity), at a ~30% discount to
other midcap players.
Strong up-tick in demand expected in companys key markets
DCLs key markets witnessed an oversupply situation over the past few
years on account of political instability in Andhra Pradesh (the key
cement-consuming state in the south) and a general slowdown in the
economy. However, going forward, we expect demand to revive in AP
and Telangana led by the creation of Telangana and political stability in
AP. Both governments of AP and Telangana are planning to invest heavily
in infrastructure projects. The AP government has proposed to invest
| 20,000 crore to develop its new capital Amravati. Further, Telangana is
planning to invest in low cost housing and irrigation projects, which could
generate cement demand of ~2-4 MT in FY17E. DCLs cement plant is in
close proximity to these infra projects, which would make it a key
beneficiary of cement demand emerging from the region.
Conservative approach yields better returns during downturn
In FY10-15, DCLs key markets witnessed a downturn. However, despite
this weak demand, the company was able to make profit at the net level
unlike some of its peers that incurred losses in the same period. Further,
cash flow generated in this period was efficiently utilised to pay off debt
instead of incurring capex. This has helped the company to reduce its D/E
from 2.0x in FY10 to 0.3 in FY16. Also, over the next two or three years,
the company does not plan to incur capex for expansion. We believe the
incremental cash generated may be used for further cost rationalisation,
expansion post two to three years of healthy dividend payout.
Exhibit 1: Financial Performance
(Year-end March)
Net Sales (| crore)
EBITDA (| crore)
Net Profit (| crore)
EPS (|)
P/E (x)
Price / Book (x)
EV/EBITDA (x)
RoCE (%)
RoE (%)

FY12
509.8
115.6
47.8
68.2
15.5
3.4
7.0
15.3
24.3

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

FY13
499.1
64.9
7.3
10.4
101.5
3.3
12.5
4.5
3.2

FY14
390.8
56.8
5.0
7.2
147.8
3.2
14.3
4.2
2.2

FY15
438.6
65.4
19.9
28.4
37.3
3.0
12.4
8.5
8.1

FY16
579.1
114.7
45.6
65.2
16.3
2.6
7.1
15.6
15.9

Commissioning of railway siding to reduce freight cost

The company has incurred a capex of | 50 crore for setting up a railway
siding. This is expected to be operational by Q3FY17E. We believe this
will help DCL improve the rail road mix and reduce its freight cost.
Exhibit 2: Geography-wise revenue share in FY16

Exhibit 3: Segment-wise revenue share trend

Others
Kerala
5%
9%

Ap & Telangana
43%

Tamil Nadu
17%

6.8

8.6

2.3

503.0

496.8

FY12

FY13

Karnataka
16%

379.4

428.7

FY14

FY15

Cement

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

Exhibit 4: Revenue trend

Exhibit 5: EBITDA, EBITDA margin trend

700.0
600.0
500.0

509.8

499.1

120.0

438.6

390.8

300.0
200.0

115.6

114.7

FY13

FY14

FY15

80.0

64.9

15.0

65.4

56.8

60.0

10.0
5.0
0.0

FY16

FY12

FY13

Net sales

FY14

EBITDA

Source: Company, ICICIdirect.com, Research

Exhibit 6: Net profit and net margin trend

Exhibit 7: RoCE and RoNW trend

45.6

40.0

10.00

30.0

8.00

25.0

7.3

10.0

5.0

FY12

FY13

FY14

Net profit

FY15
Net profit margin

FY16

(%)

4.00

(%)

19.9

20.0

FY16

24.3

20.0

6.00

30.0

FY15
EBITDA margin

Source: Company, ICICIdirect.com, Research

47.8

25.0
20.0

FY12

| crore

Power

20.0

50.0

FY16

40.0

100.0

60.0

570.5

100.0
| crore

400.0

| crore

140.0

579.1

9.9

11.4

(%)

Maharashtra
10%

700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0

15.0

15.3

10.0

2.00

5.0

0.00

4.2

4.5
FY12

15.6
15.9

8.5
8.1
2.2

3.2
FY13

FY14
RoCE

FY15

FY16

RoNW

Source: Company, ICICIdirect.com, Research

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

Page 2

1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

1.39

Exhibit 9: Realisation trend

1.42

5000.0

1.32
1.08

4000.0

1.08

3608.1

3503.4

3516.1

FY12

FY13

FY14

2000.0

0.0
FY13

FY14

FY15

FY16

Volume trend

Source: Company, ICICIdirect.com, Research

Exhibit 10: EBITDA/tonne trend

Exhibit 11: Cost/tonne trend

1000.0

600.0

526.6

457.7

606.4
|/tonne

|\tonne

870.5

829.2

800.0

400.0
200.0
0.0
FY12

FY13

FY14

FY15

FY16

4500.0
4000.0
3500.0
3000.0
2500.0
2000.0
1500.0
1000.0
500.0
0.0

3047.9

FY12

3507.4

3969.8

FY13

EBITDA/tonne

FY14

Source: Company, ICICIdirect.com, Research

Exhibit 12: Debt/equity trend

Exhibit 13: Debt/EBITDA trend

1.0

1.0

1.1

0.8

0.8
0.6
0.4

0.3

0.2
FY12

FY13

FY14

FY16

4109.3

4035.7

FY15

FY16

Cost/tonne

Source: Company, ICICIdirect.com, Research

1.2

FY15

Realisation

Source: Company, ICICIdirect.com, Research

1.2

4331.0

1000.0

FY12

1.4

3974.5

3000.0
(|)

(MT)

Exhibit 8: Volume trend

FY15

Debt/Equity

Source: Company, ICICIdirect.com, Research

ICICI Securities Ltd | Retail Equity Research

FY16

4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00

3.51

4.04
2.84

2.18
0.68

FY12

FY13

FY14

FY15

FY16

Debt/EBITD
A
Source: Company, ICICIdirect.com, Research

Page 3

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 4

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