*DCM Shriram (CMP INR 1,010, MCAP INR 15,800 crore)- LOOKS SET FOR STRONG RERATING- SUGAR + CAUSTIC TAILWINDS*
KEY TRIGGERS
1. DCM SHRIRAM is into 3 major businesses Caustic Soda, PVC & Sugar
2. *TOTAL CAPACITY*- INR 5,40,000 Ton of Caustic Soda / 70,000 tons of PVC resins/ 65-70 crore KG Sugar/ 12 crore Litre Ethanol
3. DCM Shriram is a net debt free company
4. DCM Shriram reported INR 22/Share EPS in 3QFY22 & TTM EPS of INR 58/Share
5. *DCM Shriram is set to report an EPS of INR 25-30/Share (100% YoY Growth) in 4QFY23E as per our estimates*. Its FY23E EPS could be in excess of INR 70/Share
6. DCM Shriram Caustic Soda did EBITDA/KG of INR 18 in 3QFY22 when Caustic Soda realization was INR 43/KG, this quarter Caustic Soda realization should be INR 60-62/KG (Current Spot rates are INR 70/KG). Incremental EBITDA due to better realization could be more than 15-20% of 3Q level- *Realization increase is 50% QoQ, However EBITDA improvement restricted to 15-20% due to higher power costs*
7. Seasonally 3QFY22 is a weak quarter for Sugar business, in 3Q Sugar EBIT was INR 112 crore, in 4QFY21 it was INR 220 crore. *With Sugar business both domestic and exports doing well this quarter expect DCM to match the 4QFY21 numbers*
8. DCM Shriram trades at 17x TTM P/E which is very reasonable In the context of earnings growth due to better product specific margins, upcoming capacity expansion (INR 2,000 crore) mainly led by internal accruals and ability to deliver cross cycle ROCE of 15%+ *(Last 6 year average ROCE of 18%).*