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Robust expansion plan; focus remains on improving margins

* DALBHARA has been consistent in its capacity expansion over the past decade, with a 14% CAGR in grinding capacity since FY11. In the long run, the company expects a 14-17% CAGR in capacity and aims to increase its cement grinding capacity to 110-130mtpa by 2031.

* In our recently concluded Annual Global Investor Conference, Managing Director Mr. Puneet Dalmia shared his views on the industry’s long-term potential and changing dynamics. He expects the consolidation to accelerate and believes that the top-4 players’ volume share is expected to rise to 69% by FY30E vs. 44%/58% in FY13/FY23. The top-4 players will garner 85% of industry’s demand share over FY23-30. He expects a 6.5% CAGR in industry capacity over FY24-30, lower than the ~8% CAGR in demand.

* DALBHARA has taken several initiatives (increase in sales of blended cement, use of low-cost additives, higher usage of WHRS/solar power, and greater use of alternative fuels), which will help to improve the cost structure and achieve its aim of becoming carbon negative by 2040.

* We estimate DALBHARA to clock a revenue/EBITDA/PAT CAGR of 11%/22%/ 29% over FY23-25. We have not included the proposed acquisition of JP assets in our assumptions.

* DALBHARA is a long-term play, backed by: a) robust growth plans, along with diversification in its market presence; b) locational advantages in the east region (clinker facilities in Odisha and Bihar), and c) its commitment to ESG, which will also aid cost reductions.

Aims to become pan-India cement player through rapid expansion

* DALBHARA has been consistent and aggressive in capacity expansion. It raised its grinding capacities through the organic and inorganic routes to 43.7mtpa currently from 1.2mtpa in FY06. The company has set an aggressive target of increasing its grinding capacity to 75mtpa/110-130mtpa by FY27/FY31 and wants to become a pan-India cement player.

* DALBHARA has proposed to acquire cement assets of Jaiprakash Associates (JPA) located in central India with clinker/cement/CPP capacity of 6.7mtpa/ 9.4mtpa/280MW at an enterprise value of INR58.36b (USD75/t), subject to regulatory approvals. The deal, excluding JP super Dalla clinker plant (currently under arbitration between UTCEM and JP group), is likely to be completed by FY24-end. Following the completion of this acquisition, the company’s grinding capacity will rise to 56mtpa by FY24E.

Management expects consolidation to accelerate in the industry and demand to surpass capacity growth over FY24-30E

* Mr. Dalmia believes that the top-4 players are estimated to get 75%/85% of incremental supply/demand over FY24-30, which will lead to further consolidation in the industry. The top-4 players’ capacity/volume share stood at 38%/44% in FY13, which increased to 46%/58% in FY23. With the higher capacity addition by top-4 players, their capacity/volume share is likely to rise to 60%/69% by FY30.

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