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Weak NSR and sustained cost upset margin

Result Synopsis

Dalmia Bharat (DALBHARA) reported weak numbers primarily due to lower-thanexpected volume and sequentially flat cost. Though NSR moderated by 3% y/y in Q1FY24, revenue/EBITDA grew by +10/4% y/y on account of +13% y/y volume growth. Total cost/te was flat due to surge in RM cost/te by +19% y/y over higher slag & fly ash prices, whereas the power cost/te declined 16% y/y. However, power cost/te increased sequentially due to higher grid-power charges and change in trade & regional mix. As a result, elevated cost and muted NSR restricted the EBITDA to Rs871/te (v/s Rs1084/te) in Q1FY24. Adj. PAT declined by 34% y/y primarily due to higher depreciation & interest expense in Q1FY24.

DALBHARA reached 41.7MTPA of capacity by Q1FY24 and will achieve 46.6 MTPA by FY24 end (excl. 9.4MTPA of JPA assets). We believe DALBHARA to clock a volume growth of +20/11% y/y for FY24/25E (incl. JPA assets) owing to demand outlook and incremental capacities. Management is waiting for lender approval for JPA assets acquisition (9.4MTPA cement & 6.7MTPA clinker), while expected to complete before Mar’24. With JPA assets, DALBHARA will make breakthrough in the central market, fulfilling its PAN India aspiration. Management guided borrowing to increase to Rs70bn by FY24E on account of ongoing CAPEX + JPA acquisition. Therefore, we believe the sustenance of cement prices, especially in the east/south market, will be vital for DALBHARA to improve profitability and lower its dependency on borrowing. We continue to like DALBHARA for its stronghold in the East/South key markets, recent entry in west and pursuing entry into central India. The strong Infra push in the East/South will drive incremental volumes from newly added capacities and cost optimization measures (plans to reach 324MW of green power) set to improve the efficiency. We maintain our BUY rating with a TP of Rs2,547, valuing the stock at 15x EV/EBITDA on the FY25E.

Result Highlights

* DALBHARA reported volume of 7MT (v/s YSECe of 7.5MT) up by +13% y/y, but declined by 5% q/q in Q1FY24

* Despite NSR declining by 3% y/y and 2% q/q as anticipated, the revenue grew by +10% y/y to Rs36.4bn due to strong volume growth (6% below YSECe due to lower-than-expected volume).

* While we have anticipated the total cost to decline by ~Rs230/te q/q in Q1FY24 but came flat y/y and q/q to Rs4300/te, as power & fuel cost was still elevated.

* Muted NSR and sustained elevated cost resulted in an EBITDA miss of Rs200/te to Rs871/te, declined by 8% y/y and 9% q/q in Q1FY24.

* EBITDA came in at Rs6.1bn, up by 4% but declined by 14% q/q in Q1FY24 due to seasonally weak NSR coupled with flat (elevated) cost.

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