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Cost under control; seasonal weakness kept
profitability muted

Result Synopsis

Dalmia Bharat (DALBHARA) reported in-line performance, an EBITDA/te of Rs653 (YSEC est. Rs662) declined by 46% y/y as cost/te continues to increase by +17% y/y in Q2FY23. Due to newly added capacities, volume grew by 14% y/y to 5.8MT (YSEC est. of 6MT) coupled with 2% y/y increase in NSR (+2% higher than YSEC est.) resulted in revenues of Rs29.7bn (v/s YSEC est. of Rs30.2bn). However, total cost increased by 33% y/y dented EBITDA by 39% y/y and Adj. PAT declined by 78% y/y in Q2FY23. Management indicates the ongoing expansion progressing as per schedule and will take the total capacity to 49MTPA by FY24E v/s 37MTPA in Q2FY23. With long term positive demand outlook and incremental capacities, we believe DALBHARA to clock a volume growth of +11/15/11% y/y for FY23/24/25E. Additionally, to fulfil its PAN India aspiration (110-130MTPA by FY31E) and to sustain the current growth trajectory, DALBHARA sets to announce an interim expansion plan targeting ~75MTPA by FY27E. Power cost inched up 1.55x to Rs1538/te in the last 4 quarters and with the resurgence of fuel prices (Pet Coke $210/te v/s $160/te in Sep’22), we believe profitability to remain in check. So, we have trimmed our EBITDA est. by 9/5% and PAT by 11/6% for FY23/24E. We believe the sustenance of cement prices & demand especially in east/south market will be vital for DALBHARA to offset the cost pressure, while huge influx of industry’s new capacities in the East will keep prices under check. We continue to like DALBHARA: 1) Stronghold in East/South key markets 2) Ventured in west and seeking entry in central 3) Strong Infra push in the East/South by govt. 4) Increasing utilization of new added capacities 4) Cost optimization measures (green power to 328MW) set to improve the efficiency. We maintain our BUY rating with a TP of Rs2,394 valuing the stock at 15x EV/EBITDA on the FY24E.

Result Highlights

* Volume grew by 14% y/y to 5.8MT (v/s YSEC est. 6MT). Similarly, NSR was higher by 1.4% y/y (+2% higher than our est.) translating revenue growth of 15% y/y in Q2FY23. While owing to seasonal weakness, volume & NSR corrected by ~7/4% sequentially resulting in revenue decline by 10% q/q in Q2FY23.

* Total cost/te increased by 17% y/y in Q2FY23, mainly due to the power/te of +55% y/y and RM/te of 16% y/y. While surprisingly power/te stood flat sequentially but the increase in RM & Other cost +12% & +9% q/q raised total cost/te by 2% q/q. As a result, EBITDA/te declined by 46% y/y and 31% q/q to Rs653 (v/s YSEC est. of Rs662/te) in Q2FY23.

* EBITDA decline by 39% y/y and 35% q/q to Rs3.8bn translates to an EBITDA margin of 12.8% in Q2FY23 v/s 24% Q2FY22 (against 17.7% Q1FY23). PAT declined by 78% y/y and 77% q/q to Rs460mn in Q2FY23.

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