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Steady volumes on YoY basis: Dalmia’s revenue for Q1FY24 grew by 9.8% YoY but saw a de-growth of 7.4% on sequential basis to Rs 3,624cr. The sales volumes too saw a mixed trend with growth of 12.9% YoY to 7MnT while sequentially it declined 5.9%. However, realization remained subdued to Rs 5,177 as compared to Rs 5,258 in Q4FY23 (down by 1.5% QoQ) and at Rs 5,326 in Q1FY23 (down by 2.8% YoY).

Muted EBITDA margins: The company’s raw material cost saw an increase of 34.8% as compared to last year which impacted gross profit which saw a growth of just 6% YoY. Gross margins declined by 290bps YoY while improved by 355bps QoQ as raw material cost witnessed some easing. However, sequentially gross profit de-grew by 3.3% on the back of decline in revenue as well as volumes. Further, EBITDA continued to be impacted due to fuel and freight cost at high levels and so it grew just by 3.6% YoY while seeing a de-growth of 13.7% QoQ. Thus, EBITDA margins were down by 101bps YoY and 124bps QoQ to 16.8% while EBITDA/ton was at Rs 871, down by 8.3% YoY & QoQ. Further, the company had reported profit share non-core assets as well as sold entire investment of refractories and thus adj. PAT for last quarter stands at Rs 223cr. In Q1FY24, adj. PAT de-grew by 23.4% YoY and 35.4% QoQ to Rs 144cr.

Concall highlights: 1) Net Debt/EBITDA stood at 0.52x. 2) One of Lowest Carbon footprint in global cement world at 462 kgCO2/Ton of Cement. 3) Gained market share in south & north east and focus is on growing in east regions of India. 4) Will be focused on demand opportunities ahead and work towards improving growth and margins. 5) Added around 3.1MnT capacity during the quarter. 6) Going ahead, by FY24 it will reach a cement capacity of 46.6MTPA from 41.7 MnT (FY23) by growing in south India & further it has already acquired ~9.4MnT capacity in Central India from JP associates. 7) Capex spent is Rs 907cr in the quarter. 8) With JP, currently the company is helping with distributing and setting up markets for the future and manufacturing is done by JP. 9) Management remains positive on the long term growth prospects of the overall cement sector given the strong demand environment and government push towards infrastructure and housing.

Valuation: We believe Dalmia posted muted numbers this quarter but there is a lot of opportunity in the sector which will aid in growth for the company ahead. In the near term, erratic monsoon may impact demand and growth is expected from Q3FY24 onwards. Overall, the medium to long term prospect of the cement sector looks promising driven by strong demand, government investment towards infrastructure, demand from housing & real-estate sector. Also, current capacity expansion carried out by the majority of cement players to fulfil demand would bode well. Ahead, Dalmia strategy is to continue expanding in central via JP acquisition and adding capacity organically in east and south. Besides its focus cost optimization, using green fuels and increasing utilization will help in improvement of margin. On the financial front, we expect its revenue/EBITDA to improve by 27%/32% CAGR over FY23-25E driven by volumes and moderation in fuel & freight cost. Thus, maintaining our Buy rating with a target price of Rs 2,291 valuing the company at EV/EBITDA of 11x FY25E.

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