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Dalmia’s operating performance was hit by high-cost raw material stocks, but softening fuel prices offer a respite for coming quarters. Helping it become a pure cement player would be the divestment of its refractory business (a non-core asset). Its entry into the Central region, and greater focus on a higher ‘green energy’ share are positives. We retain a Buy, with a lower (12-mth) TP of Rs2,346 (earlier Rs2,536), 12x FY25e EV/EBITDA.

High-cost inventory. Aided by 12.1% y/y volume growth to 7.4m tonnes and a stable pricing environment (realisations up 3.4% y/y), revenue grew 15.7% y/y to Rs39bn. The operating performance, hit chiefly by high-cost stocks and branding expenses, led to EBITDA/tonne slipping 7.7% y/y to Rs955. EBITDA grew 3.5% y/y to Rs7.1bn, partially aided by softer fuel prices. An exceptional Rs1.44bn pertains to recognition of losses on investment in DBRL. In Q4, consumption cost of fuel declined to $174/tonne and is guided to be $165 in Q1 FY24 and $140 in Q2, per current fuel prices.

Sustainability focus. Aiming at 324MW renewable energy capacity by FY24, the company expanded its RE capacity 10x from 17MW in FY19 to 166MW in FY23, resulting in its proportion in power rising to 20.9% (10.1% in FY22). Dalmia has one of the lowest cement net-carbon footprints globally: 463kgCO2/tonne of cement. It is the largest producer of slag cement in India with an 84.1% blending ratio, and aims at becoming carbon-negative by 2040.

Business outlook, Valuation. Aiming at 110m-130m tonne cement capacity by FY31, the company is organically expanding cement capacity to 46.6m tons; post the JP acquisition it would go up to ~56m tonnes by FY24, keeping net- debt-to-EBITDA below 2x (net debt/EBITDA on 31st Mar’23: ~0.29x). Its refractory-business divestment would help it become a pure-cement player. We expect 13%/15%/26% volume/revenue/EBITDA CAGRs over FY23-25. We retain our Buy rating, with a lower (12-mth) TP of Rs2,346 (12x FY25e EV/EBITDA). Risks: Rise in raw material prices, demand slowdown.

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