07 April 2023
Executive Summary: Despite the country being in a cement capacity addition cycle, the Indian cement industry has been facing a lack of pricing power and challenges in adding to the new capacity. Although most companies have decent profitability with underleveraged balance sheets, it will be essential for cement demand to continue being high so as to maintain the existing level of profitability.
Solution:
- Dalmia Bharat Group (DBL-NSE) in line with its capital allocation policy (2021), is divesting its non-core business bodies to concentrate solely on the cement business and its expansion.
- The company continued to monetize its non-core assets (₹ 1,570 Cr. in the last two years), to invest in the Cement business. In December, the business announced the acquisition of the Jaypee Group's cement plants too.
- DBL plans to add 12mtpa (₹ 800- ₹900 Cr. capex) and acquire 5mtpa (₹ 3,200 Cr.) of JP assets, taking total capacity to 54mtpa by FY24 from a current capacity of 37 million tonnes per year. As such, the long-term plan of the company is to achieve 75mtpa by FY27 and 110-130mtpa by FY31. The timely capacity additions would also help the company deliver better-than-industry volume growth.
Current Status: The group has:
1) Sold 5% stake in IEX for ₹ 614 Cr.; would further trim the balance 15% stake in due course.
2) Exited Hippo stores for ₹ 155 Cr. (would receive ₹ 120 Cr. cash in December 2023).
3) Now sold its 42.36% stake in DBRL (Refractory business) for ₹ 800 Cr. (would receive cash over 18 months).
4) Sold its Indian refractory business (Dalmia OCL) which was a subsidiary of DBRL to RHI Magnesita for SSA in January 2023
5) Now sold Dalmia GSB Refractories GmbH (Wholly Owned Subsidiary of DBRL) to RHI Magnesita N.V. (DI) for €13m (₹116 Cr) CASH on April 2023.
The DBRL stake has been sold to the promoter group entity "M/s Sarvapriya Healthcare Solutions Private Limited" for ₹ 800 Cr. (investment carrying value of ₹ 400 Cr., tax implication of ₹ 50 Cr.; to be booked in Q4 FY23). The deal will be consummated within a month.
Transaction Share Price: ₹427/share
Of the ₹ 800 Cr., 20% would be an upfront cash payment. For the balance ₹ 640 Cr., 8.5% of NCDs are issued that would mature in December 2023 and September 2024 (₹320 Cr. each). DBRL is valued at ₹1890 Cr.; a significant part of the valuation is derived from its 14.4% stake (₹ 1600 Cr.) in RHI Magnesita India Ltd (listed company), to which Indian refractory operations were sold in January 2023; while the balance is for the Refractory overseas business in China and Germany.
