Dalmia Bharat Ltd : Hit by ballooning costs; cost pressures to ease; maintaining a Buy - Anand Rathi Share and Stock Brokers
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Buy Dalmia Bharat Ltd TFor Target Rs . 2,160
While near-term cost issues persist for Dalmia Bharat, its renewable energy expansion would help contain costs. Its long-term plan to expand capacity to 110m-130m tonnes by FY31 is intact with more consolidation in the cement sector. It is on track for 49m tonnes by FY24 and 70-75 tonnes by FY27. The divestment of a non-core asset, its net-debt free position and capital-allocation policy would strengthen its balance sheet. We retain a Buy, with a higher target of Rs.2,160 (earlier Rs.1,863.)
Industry-leading ~13% y/y volume growth. Cement volumes increased 13.7% y/y, pushing up revenue 15% y/y though realisations grew only 1.5% y/y. Prices across regions started rising from Sep. The company has given an interim milestone of 70-75m tonnes capacity by FY27. We expect revenue and volumes to clock 15% and 12% CAGRs respectively over FY22-25.
Rising share of green energy. Targeting renewables of 173MW by end-FY23 (solar ~101MW, WHRS~72MW), it installed 24MW renewable energy capacity in Q2 FY23. Further, it aims at 100% renewable energy by FY30 (now 24% of the power required). The high energy costs pushed EBITDA down 39% y/y and EBITDA/tonne down 46% y/y (to Rs653). On the greater share of renewable energy, easing cost pressures and cost optimisation, we expect EBITDA to register a 17% CAGR over FY22-25.
Business outlook, Valuation. With a target of 110m-130m tonnes cement capacity by FY31, the company is expanding capacity to 49m tons (cement) and 23.7m tons (clinker) by FY24. Aiming at all-India operations, it will expand into the North and Central regions in the next phase of expansion, keeping net debt-to-EBITDA below 2x. At 30th Sep’22, gross debt was Rs33bn, while the ned-debt-to-equity increased to 0.32x. We roll forward to FY25 and retain a Buy rating, with a higher TP of Rs.2160 (11x FY25e EV/EBITDA). Risks: Rise in raw material prices, demand slowdown.
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