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Centrum Broking
Deccan Cements (Buy)
CMP: ₹468.55
Target: ₹670
Deccan Cements Ltd is engaged in the manufacturing of cement in the form of clinker; manufacturing of Portland cement, slag cement and related products, and generation of electricity. The company’s segments include manufacturing and marketing of cement, and generation and sale of power.
Deccan Cements (DCL) registered 19 per cent y-o-y volume growth in Q4FY18, buoyed by sustained demand in AP/Telangana markets and demand recovery in other south markets. Still, aggressive pricing across south and elevated energy and freight costs continued to impact profitability — EBITDA/PAT down 17 per cent/19 per cent y-o-y.
We continue to like DCL owing to 1) its strong balance sheet; and 2) as we expect pricing to recover in south which should help the industry pass on the energy cost inflation. DCL is trading at extremely cheap valuations (13 per cent AOCF/EV yield, 5x FY20E EBITDA and $41/mt replacement cost).
We reiterate ‘buy’ with a revised target price of ₹670.
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