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Now an all-India player; maintaining a Buy

Amid the high-cost setting, Dalmia reported a strong performance overall on healthy demand and greater operating efficiency. Its entry to the stable demand-pricing (Central) region would be positive, reducing the market mix of the low-utilisation South. Its greater focus on raising the share of “green” energy, better return ratios, divesting non-core assets and a defined capital-allocation policy are positives. We believe a re-rating is on cards and retain a Buy, with a higher target of Rs.2,536 (earlier Rs.2,160), at 12x FY25e EV/EBITDA.

Strong show. The stable pricing environment and 68% utilisation pushed up revenue 22.7% y/y to Rs33.6bn (volumes up 10.5% y/y, realisations 11.2% y/y). Operating efficiency and some moderation in fuel prices helped EBITDA grow 57.5% y/y to Rs6.4bn and EBITDA/ton, 43.9% y/y to Rs1022 (industry leading). While the moderation in fuel prices is expected to continue, the share of blended cement rose to its highest, at 83%.

Entry into the Central region through the JP acquisition. In Dec’22, Dalmia entered into binding agreement with JAL to acquire cement (9.4m tonnes), clinker (6.7m tonnes) and power plants (280MW) at an EV of Rs56.66bn. It signed definitive agreements with JAL to acquire cement (5.2m tons), clinker (3.3m tons) and power plants (280MW) at an EV of Rs32.33bn.

Business outlook, Valuation. Aiming at 110m-130m tonne cement capacity by FY31, the company is expanding its cement capacity to 49m tons and 23.7m tonnes (clinker) by FY24 (post-JP acquisition ~58.4m tons(cement) and 30.4m tons(clinker)), keeping net-debt-to-EBITDA below 2x. Aiming at 100% renewable energy by FY30 (24% now), renewable energy capacity would be expanded to 328MW by FY24. We expect 12%/15%/20% CAGR over FY22- 25 in volumes/revenue/ EBITDA. We retain a Buy rating, with a higher target price of Rs2,536 (12x FY25e EV/EBITDA). Risks: Rise in raw material prices, demand slowdown.

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